Top 5 Best Tax Saving Options in 2023
One way to achieve financial security is to look for extraordinary gains. But not everyone can endure the risk factors that it poses. That’s why a simple and effective plan is needed for personal financial stability. Once you have ensured financial stability, you should take risks, but only according to your appetite and wallet. However, as you retire, you want to build more and more on your financial security if you have enough saved up already.
Relevant tax savings are a helpful way to manage your finances. For example, income tax rules tell you when and how much tax to pay. In addition, income tax provisions help reduce your tax burden using tax deductions.
Hygiene factors that affect tax savings
Before investing in the tax savings scheme of your choice, there are some hygiene factors that you must consider. First, evaluate the tax regime best suited to your needs. For example, some tax regimes are lower on taxes but don’t allow you to apply for benefits or exemptions. Others are higher on taxes but will allow you the flexibility to take advantage of the benefits of tax deductions and provisions. Another hygiene factor to consider is filing your taxes on time, or else you become liable for penalties and fines.
Top Five Tax Saving Schemes
The top 5 tax saving investment options given here not only reduce your tax burden. They also help manage your finances by ensuring you don’t bleed your tax earnings.
- Tax-saving benefits of health insurance
Health insurance comes with three-pronged health insurance benefits for you or the insured. First, it covers not only hospitalisation costs but also pre-and post-hospitalisation charges. Second, it features a no-claim bonus, i.e., if you do not avail of the benefits or do not make a claim in the policy period, your insurance cover sum insured will increase without paying extra.
In addition, the (health insurance) investment has a tax-saving aspect. As per Section 80D of the Income Tax Act, when you buy health insurance for yourself, your child or your spouse, you can claim a deduction on premium payments of up to Rs. 25,000. This can also be extended up to Rs. 50,000 for senior citizens, meaning the policyholder can get a deduction of up to Rs. 75,000 from the taxable income. If the age of the proposer and his parents is more than 60 years, the amount can increase up to Rs. 1,00,000 (Rs. 50,000+Rs. 50,000).
- Tax savings on home loan
You can claim tax benefits from home loans from banks, financial institutions, and housing finance institutions. Under section 24(b), if you pay interest on home loans, you can claim a deduction to a limit of Rs. 2 lakhs on the interest paid. However, there is no upper limit if the property is let out. For the principal part of the loan you can claim Section 80C deductions of up to Rs. 1.5 lakhs. This includes stamp duty and registration charges.
In case of a jointly borrowed home loan, each joint holder can avail of a deduction of maximum Rs. 2 lakhs on the interest paid. Under 80EEA, you can claim a deduction only if it is Rs. 45 lakhs or below. Also, the loan should have been sanctioned between 1st April 2019 and 31st March 2022.
- Unit Linked Insurance Plans (ULIP)
For individuals who prefer long-time financial planning, this is the ideal choice. It provides tax-deduction benefits of maximum Rs. 1.5 lakh per year under Section 80C of the Income Tax Act. It comes with a lock-in period of five years, and the risk is moderate to very high.
- Senior Citizen Savings Scheme (SCSS)
Launched in 2004, this government-sponsored savings plan is made for people over 60 years of age. Under Section 80C of the Income Tax Act, one can get a tax deduction of up to Rs. 1.5 lakhs. This extremely low-risk scheme comes with a lock-in period of 5 years.
- Other tax-saving instruments
Did you know a tax-saving investment can also help you generate wealth? The government offers deductions up to Rs 1 lakh 50 thousand under Section 80C of the Income Tax Act for investment in specific schemes.
The following are some instruments eligible for this tax exemption:
- National Pension Scheme: As a subscriber or investor in the NPS, you can avail of benefits on a limit of Rs. 150,000 according to Section 80C of the Income Tax Act. An NPS subscriber can claim an additional deduction of up to Rs. 50,0000 in a financial year under Section 80CCD(1B) of the Income Tax Act.
- Fixed deposits with a tenure of 5 years or more: An individual can get a tax deduction of up to Rs. 10,000 on the interest rate, whereas for senior citizens and HUFs, the deduction is up to Rs. 50,000.
- Employee’s Provident Fund (EPF) or Public Provident Fund (PPF): Under Section 80C, both EPF and PPF qualify for tax deduction of maximum Rs. 1.5 lakhs per annum.
- Sukanya Samriddhi Yojana: Investments in Sukanya Samriddhi Yojana or SSY are tax deductible up to Rs. 1.5 lakhs under Section 80C. The annual interest rate is also exempted from the tax under Section 10 of the Income Tax ACT, as are the proceeds received on maturity or withdrawal.
- Equity Linked Savings Scheme (ELSS): Under Section 80C of the Income Tax ACT, it is possible to claim a deduction of maximum Rs. 1.5 lakhs per annum, saving up to Rs. 46,800 in taxes.
Wrapping Up
Start your tax planning activities at the start of a new financial year. Those lucky to start initially can select suitable tax-saving instruments that fit their personal finance goals. Also, the PPF and ELSS schemes are set up to earn you more interest if you start at the beginning of a year.
In case of doubts, consult a financial expert like Piramal Finance for customised loan solutions for business owners and professionals.