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Essential Guide for Best Tax Savings Strategies

Published on Mar 9, 2023Updated on Oct 11, 2023

Essential Guide for Best Tax Savings Strategies

Taxes can be a significant expense for many individuals in India, but there are ways to minimize the amount you owe each year. By taking advantage of the various deductions and exemptions available under the Income Tax Act, you can reduce your tax liability and keep more money in your pocket. In this article, we will explore some of the best tax-saving strategies available in India. From investing in tax-saving instruments to claiming deductions for home loans, education loans, and charitable donations, we will guide you through the Process of maximizing your tax savings. Whether you are a salaried employee, a business owner, or a retiree, these strategies will help you save money and make the most of your income.

Investment in Tax-Saving Instruments Under Section 80C

Investment in tax-saving instruments under Section 80C of the Income Tax Act is one of the most popular tax-saving strategies in India. Section 80C provides for a deduction of up to INR 1.5 lakhs on investments made in specified instruments. Some of the most common tax-saving options under Section 80C include:

  1. Public Provident Fund (PPF), which is a long-term savings instrument that offers a tax-free interest rate and a maturity period of 15 years.
  2. Equity-Linked Savings Schemes (ELSS), which is a type of mutual fund that invests primarily in equity shares. ELSS offers the potential for higher returns but also comes with higher risk.
  3. National Savings Certificate (NSC), which is a fixed-income savings instrument with a maturity period of 5 or 10 years.
  4. Life Insurance Policies, for which the Section 80C gives you a tax break for the premiums you pay on life insurance policies.
  5. National Pension System (NPS), which is a retirement savings scheme that offers tax benefits and a regular income stream during retirement.

It is important to note that the amount invested in these instruments must be within the overall limit of INR 1.5 lakhs under Section 80C to claim the tax benefits. Additionally, the maturity period, interest rate, and tax treatment of each instrument vary, so it is important to carefully consider your financial goals and risk tolerance before investing.

Interest on Education Loans

Interest paid on an education loan is eligible for tax deductions under Section 80E of the Income Tax Act in India. The interest paid on the loan can be claimed as a deduction from the taxable income, regardless of the amount, for a maximum of 8 financial years, starting from the year in which the first repayment of the loan was made making it an interesting tax saving options.

This tax deduction is available for both the individual who has taken the loan as well as for a person who has taken the loan on behalf of a relative. It is important to note that the loan must be taken for the higher education of the taxpayer, the taxpayer's spouse, children, or a student for whom the taxpayer is a legal guardian.

Must Read: Missed Filing ITR? File Income Tax Return for AY 2022-23 Now

Interest on Home Loans

In India, you can get a tax break on both the interest you pay on a home loan and the amount you pay back on the loan:

  1. The interest paid on a home loan is eligible for tax deductions under Section 24 of the Income Tax Act. The maximum amount that can be claimed as a deduction for the self-occupied property per fiscal year is INR 2 lakhs. For rented property, there is no upper limit on the amount of interest that can be claimed as a deduction.
  2. The repayment of the principal amount of a housing loan, including pre-payment, is eligible for tax deductions under Section 80C of the Income Tax Act, subject to a maximum limit of INR 1.5 lakhs per financial year.

It is important to note that the property for which the loan has been taken must be in the name of the taxpayer or co-owned by the taxpayer to qualify for these deductions. Additionally, it is advisable to keep all necessary documentation, such as a loan agreement, interest payment receipts, and proof of ownership, to support the claim for the deduction at the time of filing tax returns.

Other Measures

In addition to the deductions mentioned above, there are several other tax saving options and deductions available under the Income Tax Act in India that can be used to reduce taxes. Some of the most common include:

  1. A standard deduction of INR 50,000 available for salaried employees.
  2. HRA received as part of the salary which is tax deductible, subject to certain conditions.
  3. Medical expenses under Section 80D of the Income Tax Act, under which the taxpayer, his or her spouse, children, or parents can deduct medical expenses paid for certain serious illnesses.
  4. Donations to charitable organizations, as per the Section 80G of the Income Tax Act, through which you can get a tax break if you give money to certain charitable organizations.

Conclusion

Individuals can lower their tax liabilities and keep more money in their pockets by taking advantage of the numerous tax-saving opportunities available under Indian tax legislation. Investing in tax-saving instruments under Section 80C, claiming deductions for the interest paid on an education loan under Section 80E, and claiming deductions for the interest paid on a home loan and repayment of a housing loan are among the most prevalent tax-saving choices.

Noting that the particular conditions, limits, and eligibility requirements for each of these deductions may vary, it is advisable to consult a tax expert to identify the most effective plan for maximizing tax savings. By knowing about the many ways to save on taxes and planning, people can make better investment decisions, lower their tax liability, and have a more stable financial future.

Meeting Your Tax-Saving Investment Obligations: How Personal Loans Can Help?

It's that time of year again when individuals and entities in India need to provide investment proofs to receive tax benefits. However, if someone has used a significant part of their savings to pay off investment commitments, they may face a shortage of funds. It is essential to meet investment commitments, such as paying insurance premiums, ULIPs, and contributions to PPF or NPS, as failure to do so may result in policy lapses and loss of tax benefits.

If someone finds themselves short of funds and time, a personal loan may be a suitable option. Based on eligibility, one could get quick approvals and have the approved funds disbursed into their bank account. Repayments can be made through EMIs within 12 to 60 months, allowing individuals to prevent policy lapses and ensure their investment commitments are met.

If you wish to take up any loan-related financial assistance from an NBFC, SMFG India Credit is a great choice with its affordable interest rates, high repayment tenures, and 0 hidden charges. You can check your eligibility and the documents you need to apply today.

DISCLAIMER: The above article is for your knowledge only and should not be construed as professional advice. Loans are disbursed at the sole discretion of SMFG India Credit. Final eligibility of every applicant will depend on a number of factors, including SMFG India Credit's policy at the time of loan application.

* Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG India Credit. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG India Credit's policy at the time of loan application. If you wish to know more about our products and services, please contact us

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