Do you feel like tax is a small part that is biting off of your investments? If you are thinking that way, there is a big chance you are wrong. Sometimes it could be the wiser choice to choose to save up on the taxes while you still can. So it is big time you start brushing up on the Income Tax sections. You invest to create wealth. Whether you invest small or big, you invest in order to look at your money grow – so just imagine how much of that money you are giving away as taxes when you can save upon it. Early in life, it might seem small, but the more you start earning, things will change.
Here is a Summary of Income Tax Deductions on Investments
Section 80 C: PPF, EPF, LIC premium, Equity-linked saving scheme, principal amount payment towards home loan, stamp duty and registration charges for property purchase, Sukanya Samriddhi Yojana (SSY), National saving certificate (NSC), Senior citizen savings scheme (SCSS), ULIP, tax saving FD for five years, Infrastructure bonds, etc. are all eligible for deduction under Section 80C.
Section 80CCD (1): Contribution of employees under Section 80CCD (1) The maximum deduction permitted is the smallest of the following:
- 10% of gross salary (in case taxpayer is employee)
- 20% of total gross income (in case of self-employed)
- Rs 1.5 Lakh (maximum permitted under Section 80C)
Section 80CCD (1b): An additional deduction of Rs 50,000 is permitted for funds placed into an NPS account. Contributions to the Atal Pension Yojana are also deductible.
Section 80CCD (2): Under this clause, employers are entitled to deduct up to 10% of their basic wage plus dearness allowance. Benefits under Section 80CCD (2) are exclusively available to salaried employees, not self-employed individuals.
Section 80 CCC: Section 80CCC allows for a deduction for payments made to annuity pension plans. The pension or sum received upon surrender of the annuity, including interest or bonus accrued on the annuity is taxable in the year of receipt.
Why do You Need to Save Taxes on Investments?
Every year, an increasing number of working professionals are introduced to the tax system. This group includes a variety of new graduates and young, inexperienced workers. These are first-time taxpayers who are just starting out in their jobs and hence do not have a huge salary to worry about. Keep in mind that under our tax structure, an annual income of Rs. 2.5 lakhs is completely tax-free.
At that point in your career, it’s tempting to dismiss tax savings as an important component of the income tax process. The advantages of tax savings may appear insignificant. However, you can frequently set an unfavorable precedent for years to come.
Every year, as your career progress and your income rises, tax savings should become a more crucial part of your tax strategy. Higher salaries are subject to higher tax rates, so it’s a good idea to preserve as much of your hard-earned money as possible. As a result, the importance of making critical investments that can reduce your tax burden for years to come should be instilled as early in your career as possible.
As previously mentioned, you can get deductions in tax in the above-mentioned ways, on the said investments. The trouble comes in when you slouch or get restless around doing this work. It can be a little extra expertise, but honestly, isn’t that just worth it?
The Investment Avenues You Can Save Tax Over
Under Section 80 C, one can invest in PPF, NSC, bank FDs, life insurance, and ELSS, among other tax-advantaged investment vehicles. ELSS has the shortest lock – a term of three years. Also, Equity Linked Saving Schemes (ELSS) allow one to profit from the long-term growth potential of equities while also providing the option to invest the money in a systematic manner.
Here are Some Important Tax Saving Schemes in Detail
PPF: Investing in a Public Provident Fund, or PPF, is the best way to save tax under Section 80C. It is best suited for those who desire to save money for retirement. It primarily offers a return that is equal to the rate of inflation. PPF permits contributions up to Rs. 150000, which can be made in small increments or in one lump payment.
The rate of interest is set by the Ministry of Finance on a regular basis. Earned interest is tax-free. The Public Provident Fund has a 15-year lock-in term. The sum can be withdrawn after five years, subject to specified restrictions. It is one of the most effective tax-saving methods.
Equity Linked Saving Schemes: They are mutual funds that are invested in stocks. The investment is in equity, with the goal of achieving long-term returns of around 15%. Such profits are not guaranteed, but the study shows that they are possible. It has the shortest lock-in time of three years. Dividends can be chosen to ensure a consistent return during the lock-in period.
Taxes are not levied on returns or capital gains. The deduction is easily claimable under Section 80C. ELSS is the greatest investment plan for saving taxes and earning higher profits.
National Pension Scheme: Section 80C of the Act allows for the deduction of donations. There are low-cost investment choices accessible. The returns are likewise varying between 3% and 10%. The withdrawals, like the maturity amount, are taxable. The money can only be accessed after retirement.
If you plan to save up, that should also apply to your investments. Not saving on your investments is like saving, spending your salary on traveling to work. So it is time for you to start saving up with a piece of good knowledge on Section 80C.