As a salaried employee, it is important to be aware of the various tax-saving options available. The Income Tax Act, of 1961 provides several tax-saving options that can help you reduce your taxable income and increase your salary. As the new financial year begins, it is important for salaried individuals to start planning their tax-saving options for the financial year 2022-23. Tax planning is an essential aspect of financial planning and can help you reduce your tax liability while also providing an opportunity to invest in instruments that can provide long-term financial benefits.
In this article, we will discuss some of the best tax-saving options for salaried individuals.
As a salaried individual, there are several tax-saving options available for the financial year 2022-23.
1. Public Provident Fund (PPF)
PPF is Tax saving option for salaried employees and PPF is a long-term investment scheme that comes with a lock-in period of 15 years. The interest rate is currently 7.1% per annum, which is compounded annually.It is one of the most popular tax-saving instruments in India as it offers tax benefits on both the investment amount and the returns.PPF is a government-backed savings scheme that offers guaranteed returns along with tax benefits. Contributions made to the PPF account are eligible for tax deductions under Section 80C, with a maximum limit of Rs. 1.5 lakh per year. The interest earned on the PPF account is also tax-free.
2. Employee Provident Fund (EPF)
EPF is Tax saving option for salaried employees, EPF is a retirement savings scheme that is mandatory for all salaried employees. A portion of your salary is deducted every month and deposited in your EPF account.The contribution made by the employee towards EPF is eligible for tax deduction under Section 80C of the Income Tax Act. The employer’s contribution to the EPF is also tax-exempt. The interest rate on EPF is currently 8.5% per annum, which is compounded annually and interest earned on EPF is also tax-free.
3. National Pension Scheme (NPS)
NPS is Tax saving option for salaried employees, NPS is a government-backed retirement pension scheme that offers tax benefits.NPS savings scheme is open to all Indian citizens between the ages of 18 and 60 years. Salaried individuals can invest up to 10% of their basic salary and dearness allowance in NPS, which is eligible for tax deductions of up to Rs. 1.5 lakh per year. The maximum investment limit for NPS is Rs. 2 lahks per annum. The scheme offers different investment options such as equity, corporate bonds, and government securities. The contributions made towards NPS are eligible for tax deductions under Section 80CCD(1) of the Income Tax Act. You can claim an additional tax deduction of up to Rs. 50,000 under Section 80CCD(1B) for contributions made towards NPS.
4. Equity Linked Saving Scheme (ELSS)
ELSS is a mutual fund scheme that invests in equity and equity-related instruments. ELSS funds have a lock-in period of three years and provide tax deductions of up to Rs. 1.5 lakh under Section 80C. ELSS funds are a good investment option for salaried individuals looking to save taxes while also earning good returns on their investments.ELSS funds invest primarily in equities, which are subject to market risks.
5. Sukanya Samriddhi Yojana (SSY)
SSY is a government-backed savings scheme for the girl child that offers tax benefits under Section 80C. Under this scheme, parents or guardians can open a savings account in the name of their girl child who is below the age of 10 years. The account can be opened in any post office or authorized bank in India. The account can be opened with a minimum deposit of Rs. 250 and a maximum deposit of Rs. 1.5 lakh can be made in a financial year. The account will earn a fixed rate of interest that is revised by the government every quarter. The scheme has a lock-in period of 21 years or until the girl child reaches the age of 18, whichever is earlier. Contributions made to the SSY account are eligible for tax deductions of up to Rs. 1.5 lakh per year.
Note:- The account can be opened for a maximum of two girl children and the account matures when the girl child attains the age of 21 years. Partial withdrawals can be made from the account once the girl child reaches the age of 18 years, for the purpose of her education or marriage. Additionally, the contributions made towards the account are eligible for tax deductions under Section 80C of the Income Tax Act.
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6. Tax-Saving Fixed Deposits
Tax-saving FDs are a popular investment option for salaried individuals looking to save taxes. These FDs come with a lock-in period of five years and offer tax deductions of up to Rs. 1.5 lakh under Section 80C.Under this section, an individual can claim deductions of up to Rs. 1.5 lakh per financial year. The interest rate on tax-saving FD is currently around 5.5-6% per annum, The interest earned on tax-saving fixed deposits is taxable.
7. Home Loan repayment
The principal and interest components of your home loan are eligible for tax deductions under Sections 80C and 24(b) of the Income Tax Act, respectively. You can claim a tax deduction of up to Rs. 1.5 lakhs for the principal component of your home loan u/s 80C.
You can claim a tax deduction of up to Rs. 2 lakhs for the interest component of your home loan u/s 24.
Note:- It is important to note that this deduction is available only for properties that are self-occupied and not for properties that are let out or rented. Additionally, the deduction can only be claimed after the construction of the property is completed and possession is taken.
8. Health Insurance Premium
Premium paid for health insurance for self, spouse, and dependent children is eligible for a tax deduction of up to Rs 25,000 under Section 80D of the Income Tax Act.
You can claim an additional tax deduction of up to Rs. 25,000 for health insurance premiums paid for your parents.
9. Unit Linked Insurance Plan (ULIP)
ULIP is a type of investment plan that provides both insurance and investment benefits. The contributions made towards ULIP are eligible for tax deduction under Section 80C of the Income Tax. ULIPs have a lock-in period of five years.
10. Donation
Donations made to eligible charitable institutions and trusts are eligible for tax deduction under Section 80G of the Income Tax Act. the deduction allowed ranges from 50%to 100%of the amount donated depending on the institute and nature of the donation.
Note:- It is important to note that not all charitable organizations or funds are eligible for deduction under section 80G. Taxpayers should check the list of approved organizations and funds before making a donation to ensure that they are eligible for the deduction.
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