As FY 2021-22 draws to a close here are the best way to save taxes and also generate tax-free income
The tax saving season is here for last-minute taxpayers who have finally started comparing investment options and other schemes to save taxes. As some schemes have a deadline till March 31 for making minimum contributions, do it soon. Here are some of the best ways to save taxes and also generate tax-free income.
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Under the Section 80C of the Income Tax Act 1961, you can reduce your tax liabilities by getting deductions for all your taxable income during the financial year.
Here are a few schemes/transactions that qualify under 80C for tax deductions:
Equity Linked Savings Scheme (ELSS): Equity Linked Savings Schemes is a type of mutual funds with a three-year lock period. It is the only section of the mutual fund in India, which is eligible for tax deductions under Section 80 (C) of the Income Tax Act. For profits from your ELSS investment of more than Rs 1 lakh per financial year, you should pay only 10% LTCG tax and the investments made qualify for a tax deduction.
Senior Citizens Savings Scheme (SCSS): SCSS is a good option for a risk-free investment. It is a long-term savings option backed by the Indian government. The maturity period is five years and investors may want to extend it by an additional three years. The current interest rate is 7.4 percent. Interest is taxable, and TDS applies if interest exceeds Rs 10,000 per annum. All contributions qualify for tax deduction.
National Pension Scheme (NPS): NPS is a retirement benefit plan, administered and regulated by the Pension Regulatory Fund Authority of India. NPS is the cheapest investment product available and can earn tax deductions under section 80C.
Term Life Insurance Premium: Your life insurance premium may allow you to receive a tax deduction under Section 80C.
Public Provident Fund (PPF): It is a long-term investment way to earn tax benefits. The current interest rate on PPF account is 7.1 percent p.a., which is compounded annually, and the closing time is 15 years.
National Savings Certificates: The National Savings Certificate is a fixed income investment option backed by the Government of India. The current interest rate is 6.8 percent per annum. The minimum amount required to purchase an NSC certificate is Rs 1,000. Interest earned in the last year is only taxed.
Tax Saving FDs: You can invest in fixed tax savings fixed deposits and get a maximum tax deduction of up to Rs 1.5 lakh. The minimum investment amount varies depending on your bank, but the maximum amount is reached within the 80C that is Rs 1,50,000.
Home Loan repayment: If you have taken a home loan, the EMI portion leading to paying the principal amount is eligible for a tax deduction under Section 80C.
Section 80CCD (1): Investments in the NPS are taxable under this section. The maximum profit you can earn annually under this category is Rs 1.5 lakh.
Section 80CCD (1b): This clause provides for an additional deduction of Rs 50,000 investment in NPS. This is more than Rs 1.5 lakhs obtained under Section 80CCD (1).
Under Section 80D of the Income Tax Act, you can claim up to Rs 1 lakh in tax deductions for payments in respect of medical insurance premiums purchased for spouse, children, and parents. These benefits can be claimed by individuals and Hindu Undivided Families (HUFs). A tax deduction of Rs 25,000 is available for self, spouse, and dependent children and for senior citizens if is Rs 50,000.
Under Section 80E of the Income Tax Act, the interest you pay for your education loan can be valued as a tax deduction. There is no limit on the tax deduction amount and it is available for a maximum of 8 years or till the interest is paid.
Section 80EE of the Income Tax Act, 1961 allows for deductions on interest paid on the repayment of home loans taken out by a first-time homebuyer. If you fall into this category, you can still claim tax deduction of up to Rs 50,000 under section 80EE. This limit is above the limit provided under section 80C and Section 24 of the IT Act, 1961.
The following conditions need to be satisfied to be eligible to claim this deduction.
Any other residential property should not be owned by the individual on the date of the sanction of the loan.
The value of the property should be less than Rs 50 lakh.
The loan amount must be less than Rs 35 lakh.