Different Ways to Save Taxes in India

Saving on taxes becomes a mandate if you have specific long-term plans pertaining to investment and achieving a particular financial goal. Fortunately, the Income Tax Act has various provisions to help taxpayers optimise the taxes to be paid, given that the investments are designed in a certain way. Furthermore, there are some investments that you should and should not make based on their taxability; sometimes counterintuitive to popular investment practices. In this article, we will take a detailed look at market-linked schemes and deductions that you can exploit to save taxes and also certain dos and don’ts to remember while investing.

• Market-linked schemes like the ELSS and the EPF are good avenues to minimise your income tax.
• Keep an eye on certain sections of the Income Tax Act, like 80C, 80CCD (1B), and 80G.
• Calculate your property valuation and pay the appropriate tax.

Let us first take a look at the market-linked schemes that you should use to minimize your income tax:

• Equity-linked savings scheme (ELSS): This scheme is one of the most effective investments because it combines equity funds with debt funds and arbitrages to optimise your profits. While arbitrages capitalise on the fractional price differences when you buy and sell stocks simultaneously to generate profit, debt funds are safe bets because they deal with fixed-income assets like corporate and government bonds. These two factors offset the risk factor of equity funds and help you generate substantial profits in a short time.
• Tax-saver FD: Tax-saving FDs are a zero-risk investment that can help you achieve assured tax deductions. This scheme is codified under section 80C of the Income Tax Act, and you can claim tax deductions of up to Rs. 1.5 lakhs with this investment. However, please bear in mind that the 7-8% interest rates that you will earn under this 5-year FD plan is taxable, and the taxes will be calculated based on the tax bracket you belong to. A similar investment scheme that offers 7.7% interest is the National Pension Scheme (NPS). If you are looking for a safe investment option, you can consider fixed deposit. They offer guaranteed returns and a fixed interest rate throughout your investment tenure. You can consider investing Bajaj Finance Fixed Deposit. With a top-tier AAA rating from financial agencies like CRISIL and ICRA, they offer one of the highest returns, up to 7.30% p.a.
• Senior Citizens’ Savings Scheme (SCSS): If you are a senior citizen, you can opt for this scheme with a minimum investment of just Rs. 1,000. If your spouse is also a senior citizen, you can open a joint account with her and enjoy an interest of 8.2%. Please note that the maximum tax deduction claim amount is Rs. 1.5 lakh and the maximum investment is Rs. 30 lakhs.
• Sukanya Samriddi Yojana: You must take advantage of this scheme if you are saving for your girl child. This scheme allows you to earn an interest of 8% on your principal amount on a maximum tenure of 21 years or until your child gets married after she turns 18. The biggest benefit of investing in this scheme is that the interest you earn is not taxable.
• Employee Provident Fund (EPF): If you are a salaried employee, you must invest in an EPF to secure a long-term goal of retiring early. As of recent norms, you need to contribute 12% of your salary to your EPF. You earn good interest on this principal amount (about 8.15%), and can withdraw the money after you retire. However, the interest on the principal amount is taxable when it exceeds the limit of Rs. 2.5 lakhs. You may also think of the EPF as an emergency fund, as it allows withdrawal before maturity, which prevents you from falling into debt traps.
• Home loans: Taking home loans can enable you to claim depreciation in the total value of your property and thus pay lower taxes. You can also claim deductions on the principal amount u/s 80C and the interest paid u/s 24.

There are certain investments that you must refrain from, although popularly advised:

• Investing in gold may not be a good idea because the taxes on gold are ever-increasing.
• Calculating the valuation of your assets correctly is key to paying the correct tax and avoiding overpaying.
• Having a valid PAN card is a must, and for any assistance, contact the IT department directly instead of third parties.