There are so many people who waste their money by paying extra tax in lack of proper knowledge of how to save tax. So, I am here today to explain you “how to save tax” legally. Under section 80C of Income Tax Act, several government investment schemes are mentioned for saving tax. By these schemes, you can get deduction in tax up to Rs.1.5 lakh/year. I will explain the best of these schemes for you at this blog. So, welcome guys once again at this very important blog of mine.
At first, I want to inform you that, in India, a person earning Rs. 2.5lakh/year, is considered to pay tax to government. But, as I said in the above paragraph that there are some investment schemes, by using them you can save your tax. So, I will discuss some of them one by one.
Public Provident Fund (PPF):
PPF is one of the best retirement schemes provided by the government. PPF scheme is for all: either you are a salaried employee, self employee or a businessman. You can invest Rs. 500/year to Rs. 1,50,000/year depends upon your own choice. You can deposit your instalments monthly or annually as per your wish. You are allowed to open a PPF account from any post office or any designated bank as per your flexibility. Even you can open a PPF account at the name of your wife or a minor too. The rate of interest is 8% approximately for PPF. Most importantly, if you wish to invest your money “without taking any risk”, PPF is the best option for you. But, yes, this is a long term scheme. Lock in period of this PPF scheme is 15 years but you can partially withdraw your money after 7 years. This is really a wonderful retirement plan. Even you can become crorepati by investing in PPF for more than 15 years. If you want to know more about this concept, you can check my blog “How to become crorepati by investing in PPF.”
Employee Provident Fund (EPF):
EPF is another fantastic retirement plan. But, it can be taken by a person who gets a salary, doesn’t matter he/she is employed or self-employed. So, it is very clear that a businessman cannot open an EPF account. In this retirement plan, you have to invest 12% of your total salary and your employer will also invest 12% of your total salary on your behalf. It means 24% of your total salary will be invested in EPF. You do not have to give any TAX till Rs. 1.5 lakh/year at the 12% amount invested by you and NO TAX at all at the 12% amount invested by your employer on your behalf. The interest rate at PPF scheme is approximately 8.5% and it can be changed by the government every year. The lock in period for EPF is 5years and after 5 years if you wish to withdraw your amount, there are some terms and conditions such as if you want to withdraw your money for the education or marriage like purpose of your children, only then you are allowed to withdraw. Since the purpose of this scheme is to serve you after your retirement that is why, this scheme is designed in such a manner. So, if you wish to invest in EPF, you can ask to your employer to do so. When your employer registered you for EPF, you can ask him/her for an “UAN” number to track your balance. EPF is also a risk free government retirement plan which is not affected by the ups and downs of the market. So, you can invest your money in EPF without any doubt.
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Equity Linked Saving Scheme (ELSS):
Equity Linked Saving Scheme (ELSS) is also a good investment scheme under section 80C of income tax act through which you can have deduction of Rs. 1.5lakh/year. But, ELSS is subject to market risk. It means returns from this scheme depend upon the ups and downs of market for sure. According to available data, the returns from most of the ELSS funds in past 5 years is 15-20% which is very high comparatively PPF and EPF but in future, it can be high or low according to market, so nothing is fixed here. Lock in period of ELSS is 3 years. It means if you want to invest for a shorter period and save your tax, you can invest in ELSS. You can go to an asset management company in order to open an ELSS account or you can do it by using several available apps like groww app. This is basically an app for mutual funds and ELSS is also a type of mutual funds. Here you are allowed to compare the returns of different mutual funds of past years. If you are investing in ELSS then you will get deduction till Rs. 1.5 lakh/year and you do not need to pay tax at the amount which you will get as an interest but there is a new tax called LTCG tax which is 10%, you have to pay if you are earning profit of more than Rs. 1 lakh.
It is noticeable that you can have a deduction till Rs. 1.5 lakh/year only on your total investment. It means if you have invested in EPF, PPF and also in ELSS and you want a deduction of Rs. 1.5lakh/year in each scheme, this is not possible. You will get deduction of Rs. 1.5lakh/ year at your total investment. There are some other ways to save tax like Life Insurance (mentioned in section 80C, deduction till Rs.1.5 lakh), Saving Accounts (mentioned in section 80TTA, deduction till Rs. 10,000 for interest), and Health Insurance (mentioned in section 80D, deduction up to Rs. 50,000).
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