It's the responsibility of every citizen of a country to pay taxes. Taxes are collected by the government in a direct or indirect way for the welfare of the nation in terms of economic, social, infrastructural, political changes. At certain points an individual may feel that the tax burden on them is too heavy and they may not be able to save any of their income due to additional taxes.
To solve this problem in this article we will be discussing certain legal ways in which an individual can actually save some chunk of their money and not give it all away as taxes. Every Individual is wanting to save taxes in some or the other way. Without any more discussion let's discuss the ways in which taxes can be saved:-
1. Making charitable donations
The Government always encourages individuals and firms to make donations and charity. Charity is good for the poor and is good for society. The government has provided various benefits and exemptions to persons who choose to make generous donations and take part in charities.
Donations which are made to the PM Relief Fund, NGOs and political parties can in most instances give you 100% tax deductions under Section 80G of the Income Tax Act. Recent amendments in the Act also include Swachh Bharat Kosh, National Fund for Control of Drug Abuse, Clean Ganga Fund to the exemption list.
2. Investment in Education or Education Loan
Every parent in today's age wants their children to have the best of education and every child wants to succeed in their career through the best of education. With the increasing inflation, even the cost of education and tuition is on the rise. Interest that has to be paid on education loan is exempt from taxes.
The exemption is not available on the repayment of the principal amount. Education loan is exempt from taxes under Sec 80E and the premium for a child insurance plan is exempt from taxes under Sec 80C.
3. Investing in market-linked instruments
Fixed Deposits and Recurring Deposits income are taxable and honestly these are quite outdated as concepts. One mustn't invest in FDs or RDs as they don't even provide a high rate of return but lock-in your money for a longer period of time. Investing in tax saving investment plans such as ELSS(Equity-Linked Saving Schemes), PPF(Public Provident fund) and NPS(National Pension Scheme) are a wiser form of investment and of saving your taxes.
ELSS aims to invest mostly in equity related instruments and bear a heavy risk whereas NPS and PPF are mostly in regard with long term. NPS relates to voluntary and long term investment plan for retirement whereas PPF is a saving-cum-tax saving instrument which aims at mobilising small savings by offering an investment with reasonable returns and tax benefits. You are exempt from paying tax on ELSS whose premiums are lower than Rs 1.5 lakh and whose lock-in period is three years.
4. Taking a Home Loan
Home loan repayment and interest repayment can be a major form of tax saving for an individual. In order to avail full benefit of the home loan the home loan amount has to be huge. For an ongoing home loan, deduction can be claimed on the repayment of the principal amount under Section 80C. Banks and NBFCs are also offering good deals on home loans and therefore it is comparatively becoming better and easier to get home loans.
5. Insurance Policy
Due to Covid-19 pandemic, people are getting even more interested in buying insurance for themselves and their families. It is important to get insured in today's day and age because of the uncertainty life holds. It is important to get an insurance policy for everyone because of the amount of benefits it has.
Life insurance can be in many forms such as plans with maturity benefits, term plans, money-back policies and ULIP (United Linked Insurance Plan). The premiums that are paid for the life insurance policies are not taxable unless they exceed an amount of Rs. 1.5 Lakh.
While the premium paid qualifies for tax benefit under section 80C, the maturity value and the death benefit is tax-free. ULIP offered by insurance companies is a single plan which gives investors both insurance and investment under a single integrated plan.
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