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How To Save Income Tax?

IndianMoney.com Research Team | Posted On Friday, February 14,2020, 05:32 PM

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How To Save Income Tax?

 

 

Many people invest just to save tax. These people rush to save taxes just before the March 31st deadline. Many a time this results in disaster as the wrong investment is made. You are vulnerable to mis-selling as agents entice you into the wrong product.

Your family needs risk protection and a term life plan is a must. Unfortunately, you avail an endowment life plan which doesn’t meet financial needs. This happened just because the insurance agent tricked you into it. This happens if the main objective is tax saving and not meeting financial goals.

There’s a new income tax regime after the Union Budget 2020. You don’t enjoy tax deductions and tax exemptions in the new tax regime. So, if you invest just to save taxes and have no real need of the product, it’s better to shift from the old tax regime to the new tax regime.

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How to Save Income Tax?

Many people avail endowment life plans and ULIPs just to save tax. These plans either generate low returns or are market linked in case of ULIPs. These don’t match risk profile. A conservative investor who avails ULIPs just to save tax; may find it doesn’t match risk profile or financial goals. He can save tax under the new tax regime without having to avail endowment or ULIP plans.

See Also: Do You Really Save with the New Income Tax Slabs?

Invest in These Tax Saving Investments and Save Tax:

Equity Linked Savings Scheme or ELSS

ELSS invests most of your money in equity. It enjoys the double benefit of high returns and tax saving. It’s an excellent investment for aggressive investors. Many ELSS schemes are known to give 15-17% returns, which is really high. ELSS enjoys Section 80C tax deduction up to Rs 1.5 Lakhs a year.

ELSS is an excellent investment for those in the higher tax brackets. You can save Rs 46,800 a year if you fall in the highest tax bracket. ELSS has a 3-year lock-in period. This forces a long-term investment and equity generally offers higher returns over the long term. It’s also quite safe over the long term.

See Also: 10 Easy Ways to Save Income Tax in India

Public Provident Fund

Public Provident Fund or PPF is a great investment for conservative investors. PPF interest is 7.9% for the January-March 2020 quarter. This is quite high among fixed income instruments. PPF has a 15 year lock-in period. PPF account can be kept active with just Rs 500 a year. Joint PPF account is not allowed. You can open PPF account in minor child’s name. The maximum tax benefit under Section 80C remains at Rs 1.5 Lakhs for both accounts.

You can avail loan against PPF. Interest charged is 2% above PPF interest rates. PPF enjoys the EEE tax benefit. There’s a Section 80C tax deduction up to Rs 1.5 Lakhs. PPF interest and withdrawals are tax-free.

You can opt for premature closure after 5 years. Premature closure is also allowed to treat diseases for parent, child or spouse. You would have to submit a medical certificate. You can prematurely close PPF for a higher education. You require proof of admission.

Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana or SSY is an excellent investment for your girl child. It helps parents save for education and marriage of the girl child. SSY account can be opened at the post office or designated public and private banks. A maximum of two accounts for two girls in a family. SSY interest is 8.5% for the current quarter.

The minimum investment is just Rs 250 a year with the maximum investment being Rs 1.5 Lakh annually. The SSY account is opened on birth of the girl child until she turns 10 years of age. The girl child operates the SSY account after she turns 18.

See Also: Some of the Lesser-Known Income Tax Deductions That Help You Save Money

The SSY account runs for 21 years after opening the account or till girl child’s marriage. If the SSY account is opened when the girl child is 8 years, it runs till she is 29 years. SSY account enjoys the EEE benefit. You get Section 80C tax benefit up to Rs 1.5 Lakhs a year. Interest earned and withdrawal at maturity are tax-free.

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