7.14 crore tax returns were filed in the previous fiscal year (2021-22), which ended on March 31, 2022. This was more than the 6.97 crore returns filed in 2020-21. Furthermore, in the same fiscal, net direct tax collections (income tax and corporation tax) reached an all-time high of Rs 14.09 lakh crore, up from Rs 9.45 lakh crore in FY 2020-21.
Therefore, as more and more people start paying Income Tax, they also need to understand how to reduce tax liability in India according to the applicable income tax slabs, as the CBDT enables more intricate revenue collection and services.
This article provides extensive information on how you can reduce your income tax obligations in India, which will enable you to build significant savings and take advantage of a variety of deductions and waivers. We frequently spend money on many things that improve our lifestyles, yet may also strain our finances greatly. However, you can still confidently navigate the tax season while notching up some savings in the form of your taxable income. So, let us explore the effective strategies of tax management.
Section 80C Investments
Section 80C of the Income Tax Act allows for an annual deduction of Rs. 1.5 lakh. Here are a few well-liked choices eligible for deductions under this section:
- Life Insurance Plans- They encompass all types of life insurance, including insurance-investment or insurance-savings strategies like ULIPs and endowment plans, and potential risk covers like term insurance. Along with tax deductions under Section 80C, life insurance plans can provide tax exemptions on the sum assured arising from death claims under Section 10 (10D). The same exemption is also applicable for maturity benefits from some types of life insurance plans, subject to terms and conditions. As term insurance is affordable and provides good coverage, many people opt for term insurance tax benefits every year.
- Public Provident Fund (PPF) – Tax deductions/exemptions are available for the contribution, interest, and maturity amount of this 15-year investment. From the 7th year, you can withdraw a portion of your money and add five-year increments to your tenure. PPF accounts can be opened at post offices and sizable banks. You may also create an account with the names of your underage children. You can get deductions under Section 80C for your contributions.
- Equity Linked Saving Scheme (ELSS) – These tax-saving plans are provided by mutual funds and invest funds in stocks. They offer a yearly tax deduction of Rs 1.5 lakh, just like other Section 80C investments. They come with three-year lock-in periods.
- Tax-saving Fixed Deposit- Tax-saving FDs with a period of five years are offered by banks and post offices. Here, it’s crucial to remember that the amount is locked up for five whole years while the interest is entirely taxable.
Mutual funds and life insurance firms both provide pension plans, which are investments that aid in saving for retirement.
- Mutual Fund Pension Plan- Several mutual fund pension plans, such as ELSS, are eligible for deductions of taxes up to Rs 1.5 lakh as per Section 80C.
- Life Insurance Pension Plan- A life insurance company’s pension plan qualifies for Rs. 1.5 lakh annual tax deduction as per Section 80CCC. You receive a lump payment tax-free of up to 33% of your retirement funds when you retire. The remaining funds are transformed into regular income by purchasing annuities and assets that provide a regular stream of money.
- National Pension Scheme (NPS) – You should think about the National Pension Plan if you want to combine tax savings with retirement savings. You can get Section 80C deductions on these investments. You can also receive a further deduction of taxes up to Rs. 50,000. At maturity, you receive a lump amount of 60% of your tax-free investments, and the remaining 40% is transformed into a consistent income source via annuities.
Section 80D Options
When you protect your family from medical crises with health insurance coverage, you can save even more on taxes. These are helpful in the tax season as well.
- Health Insurance Plans- Your yearly tax deduction for health premiums, floater, and other qualified health plans can be as much as Rs. 25,000 for yourself and your immediate family. The deductions will be Rs. 50,000 for health insurance premiums if you are a senior citizen.
- Life Insurance Riders- By adding a health-related rider to a life insurance policy, you can increase your family’s protection against severe illnesses and get tax deductions. The benefits are the same as those applicable on premium payments for individual health insurance policies.
While looking for tax-saving options, this article gives you a clear perception of your possibilities. You must ensure they are indeed a better match for your financial needs. You may use a term insurance calculator to evaluate the best coverage that you need as per your savings and income. Choose the correct assets from the tax-saving investment smorgasbord despite the approaching end of the tax-saving investment season.