As an earning adult, you should think about the future and secure yourself financially for emergencies. Any income that is not spent is saved or invested, but it is up to you to decide on what and how much. The trick is to find the balance between saving and investing.
The Indian government encourages money investments by giving tax benefits. So, you can find many options of tax saving investments waiting for you when you start earning.
The Difference Between Accumulating and Investing
Most of the Indians primarily save their income, that is to say, they put their money in a bank. Sure, the money you keep in a bank account is secure, but the interest you earn is very less.
There is risk involved in tax saving investments, but there is potential for growth. Therefore, with careful investments, you can increase your net worth. The risk factors vary according to the type of security you are choosing.
The Tax-Free Investments in India
In the essence of the modern day, it is foolish to accumulate wealth without capitalising on it. Even the Indian Tax Act is designed to promote the practice of keeping some money in the market and not just in a fixed deposit.
So, under the section 80C, a deduction can be made in your taxable income if you have invested in life insurance policies, pension funds, provident funds and fixed deposits. Health insurance and bank savings are some tax saving options other than 80C. Stamp duty, home registration charges, national savings certificate and infrastructure bonds can also be considered as tax free investments.
Note that insurance purchases made for spouse, children, and parents can be claimed too.
What Should You Invest in?
Which option of the tax saving investments should one choose? How much money should you invest? The answers to these questions depend on the individual.
The higher the potential for big returns more is the risk. And if money is left in a bank, there is no expectancy of ever increasing your wealth and reaching your financial goals. The idea is to find a fine equilibrium between risk and growth opportunities.
Here Are Some Tax Saving Options for Salaried Employees
- Pension fund: Saving for your own future will save you more money today
- Home loan: Investing in residential real estate is a potentially safe bet and the home loan instalments can be deducted from taxable income
- Life insurance policies: This is an important part of tax saving investments and any kind of plan is eligible
- Health insurance: It not only prevents financial crisis during medical emergencies but also saves your income tax
- Provident funds: Both Public Provident Fund and Employee Provident Fund, more specifically your contribution in your EPF account, give way for tax exemption
What Else Can You Go for?
Equity-linked saving schemes, a.k.a ELSS funds are transparent investments with a potential for giving high profits. The other options of tax saving investments are long-term, but ELSS funds can yield good returns in short term also.
The Economic Times rated ELSS tax saving mutual funds high in the list of income tax saving schemes 2015-2016.
The New Pension Scheme (NPS)
- This is another one of the income tax saving options with flexibility to choose equities or bonds
- You can expect 4-10% returns, more if you are lucky
- It is a low-cost investment as the fund management charges are negligible
- The scheme is controlled by the Pension Funds Regulatory and Development
The Deductions
There are guidelines on how much you can deduct from each of the tax saving investments under 80C and other sections. There is a limit in every case.
The total taxable income that can be deducted through 80C is Rs.1.5 lakh. This includes the subsection 80CCC too.
Get Help If You Need
Understanding the investments completely is important. The returns from mutual funds, schemes and ULIPs are subject to market conditions. Also, they are usually meant for long term.
Keeping money in tax saving investments just to save on tax is not prudent. Consider all the scenarios and analyse your financial position before you take decisions. You can look for tax saving tips from legitimate sources or even consult an expert.
India is a diverse country with a mind-boggling population. We are a country of variable potentials, variable restrictions, variable desires, and most importantly variable economic strengths. As such, an individualistic approach towards Income Tax Rates is a unanimous necessity in the country.
Individual Income Tax Rates
The recent policy-makers have been quite successful in formulating taxation schemes that address individual requirements while efficiently consolidating the entire economy of the Nation. Tax rates, as well as tax deductions, have been provided according to the variation in age, social strata, individual requirements, source of income of the taxpayers in the country.
Male Individuals below the age of 60 and HUF:
- If your total income is higher than Rs. 10,00,000 a taxation of 30% by which it exceeds Rs. 10,00,000 will be levied.
- Male individuals earning midway between Rs. 5,00,000 to Rs. 10,00,000 are legible to pay a tax of an amount of 20% by which their earnings exceed Rs. 5,00,000.
- If your total income varies from Rs. 2,50,000 to Rs. 5,00,000 an amount of 10% by which it exceeds Rs. 2,50,000 will be charged.
- For earnings below Rs. 2,50,000 no taxation will be imposed.
Variations in Tax Rates
The same income tax rates are applicable to individual female taxpayers below the age of 60. While all senior citizens above the age of 60 who have a total income higher than Rs. 3,00,000 but not Rs. 5,00,000 will be levied a tax of 10% of the excessive; no tax will be imposed on incomes below Rs. 3,00,000. Provisions for individual tax rates have also been enlisted for super senior citizens above the age of 80.
Individual Tax Deduction Rates
Looking unto the brighter side of the grass, regular taxpayers do enjoy their perks. The Section 80 C of the Income Tax Act allows the deduction of some amount from the usual taxes under various circumstances. Tax Deductions have been enlisted under various sub-sections.
Section 80 CCC: Life Insurance Annuity Plans
Every millennial of today needs to understand the importance of a life insurance policy. Not only will you seal a secure future but also secure your savings by becoming eligible to claim the deduction for any amount that you deposit as an annuity plan to LIC or any other recognized insurer.
Section 80 GG: Tax Deductions On Housing Rent
Alterations have been made to the tax deductions available on housing rent for the financial year 2016-17. A deduction as high as Rs. 60,000 can be claimed on housing rent through the course of a year. This deduction is only available to taxpaying individuals if the HRA is not received.
Section 80 D: Exemption of Taxation on Medical Insurance
Not many know that the government has laid out schemes to help us save our hard-earned money when we need it the most. Section 80 D of the ITA has made provisions to allow deductions on premium paid for Medical Insurance. The deductions vary according to the table below:
| Category | Deduction Available |
| Taxpayer/Spouse/Dependent Children | Rs. 25,000
|
| Parents of Taxpayers below 60 years of age | Rs. 20,000 |
| Parents of Taxpayers above 60 years of age | Rs. 15,000 |
| Senior Citizens above 60 years of age | Rs.30,000
|
| Super Senior Citizens above 80 years of age | Rs. 30,000 |
Other Tax Deductions
Many such deduction rates have been enlisted in the ITA. Some of them are:
- Section 80E for deduction on education loan.
- Section 80U that comprises deductions for physically challenged
- Section 80 TTA deduction of interest on a savings bank account.
- Section 80 CCD: Deductions For contributions to pension account.
The wide range of individual taxation rate and deductions that have been made available to the diversity of the population reflects how meticulously policy makers have framed schemes. Thus taking care of each category of individual taxpayers with the ultimate aim of a better economic structure in India.
