Top 10 Tax Saving Plans for Salaried Individuals in India

Updated on: 18 Jan 2024 // 5 min read // #mmm news
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As a salaried individual, you always try to undertake measures that can maximize your income. Due to the rising cost of living in metro cities, you might sometimes find this task a bit challenging. After all, you need to strike a balance between your present lifestyle and future goals. Though, there is one option available to you, which can help you ensure fulfilment of your future targets without affecting your present commitments.

Yes, tax-saving investment plans can help you achieve that much-needed balance between your financial present and future. It is true that as a law-abiding citizen, you must pay your taxes honestly. And the government rewards the honest taxpayers by offering several options to reduce their income tax liability.

These tax-saving plans allow you to claim various rebates and deductions against your Income Tax liability under several different sections. Therefore, by planning your taxes, you can maximize your income. If you are wondering regarding the best tax savings plans, here is a list of the top 10 tax savings plans for salaried individuals in India: –

1. Tax Saving Fixed Deposits:

Fixed Deposit is one of the favourite investment scheme for salaried individuals. Many banks offer the facility of tax-saving fixed deposits for their customers. These fixed deposits are quite similar to the regular fixed deposits. Firstly, the Tax Saving FDs have a lock-in period of 5 years, and it is not possible to break them prematurely. Secondly, it is not possible to offer these Tax Saving FDs as collateral to avail of a loan from any financial institution. You can claim a deduction of up to Rs. 1.5 Lakhs for investment in Tax Saving FDs under Sec 80C of the Income Tax Act 1961. As Tax Saving FDs offer assured income, they are preferred by individuals with low-risk appetite.

2. ELSS Funds:

Equity Linked Saving Schemes, or ELSS Funds are special mutual funds which come with a lock-in period of 3 years. You can claim an Income Tax deduction of up to Rs. 1.5 Lakhs for investment in ELSS funds under Section 80C of the Income Tax Act, 1961. ELSS funds invest the money in various equity schemes and are managed by professional fund managers. They, therefore, offer the highest returns amongst the various tax-saving plans but at the same time, carry substantial risk as well. These are suitable for investors with long-term investment horizon and moderate to high-risk appetite.

3. PPF:

Public Provident Fund, popularly known as PPF, is a long-term tax saving investment method and ideal for salaried individuals. PPF accounts can be opened with Banks and Post Offices by any Indian citizen. They come with a maturity period of 15 years which can be extended by five years at maturity. You can claim an Income Tax deduction of up to Rs. 1.5 Lakh for investment in PPF under Section 80C of the Income Tax Act, 1961. Interest rates for PPF investments are announced by the Government of India every year. Currently, a PPF account yields 7.9% per annum. Partial withdrawals are allowed only after 7 years since opening the account. It is a low-risk investment option for individuals with a long-term investment horizon.

4. NPS:

Aimed at making India a pensioned society, NPS is an attractive tax saving scheme for salaried individuals. You can claim Income Tax deduction under three different heads for investment in NPS: –

  1. Up to Rs. 1.5 Lakhs U/s 80C of the Income Tax Act, 1961
  2. Additional deduction of up to Rs. 50,000 under Sec 80CCD (1b) of the Income Tax Act, 1961
  3. If the employer contributes 10% of the basic salary of the employee to NPS, then that amount can be claimed as tax-deductible

These multiple tax-benefits make NPS the most tax-efficient tax saving plan. The money deposited in NPS is invested in Mutual Funds, Corporate Securities, and Government Bonds by the selected fund manager.

5. ULIP:

ULIP combines the benefits of investment and insurance to individuals. ULIP comes with a lock-in period of 5 years while allowing you to choose the scheme in which you wish to invest. You can claim a deduction of up to Rs. 1.5 Lakhs for investment in ULIP under Section 80C of the Income Tax Act, 1961. Moreover, the returns generated are also exempted from tax under Sec. 10(10D) of the Income Tax Act. The returns on ULIP are directly linked to the market performance of the scheme.

6. EPF:

Employees Provident Fund is a benefit scheme available to all salaried individuals. The employer and employee both have to contribute a minimum of 12% of the basic salary plus dearness allowance to the EPF account. Interest rates against EPF are announced annually by the Government of India. If the EPF amount is withdrawn after 5 years of continuous employment, the entire amount is tax-free.

7. Life Insurance Policy:

If you have a Life Insurance Policy or Term Life Insurance Policy in place, then you can claim an Income Tax Deduction against the annual premium paid. The maximum deduction available is Rs. 1.5 Lakhs under Sec 80C of the Income Tax Act, 1961. If the life insurance policy comes with any returns on maturity, they are also exempt under Sec 10 (10D) of The Income Tax Act.

8. Sukanya SamriddhiYojana:

This tax saving plan is suitable for you if you are a parent of a girl child. Herein, you can claim deductions of up to Rs. 1.5 Lakhs against investment in the scheme under Sec 80C of the Income Tax Act. The interest earned and the maturity proceeds are also exempt from taxation. The account can be opened until the girl child is 10 years old and can be operative for a maximum of 21 years. Interest rates are announced periodically by the government.

9. Pension Plans:

If you invest your money in pension plans offered by various insurance companies, you are eligible to claim deductions of up to Rs. 1.5 Lakh against investment in the pension plan U/s 80C. But the rising popularity of NPS and ULIP has led to a decline in the popularity of Pension Plans.

10. National Savings Certificate:

Investment in NSC can be made by opening a new account at any Post Office. It is a fixed-income investment suitable for investors with low-risk appetite. The maximum deduction that you can claim on investment in NSC is Rs. 15 Lakh under Sec 80C of the Income Tax Act. The interest income on NSC is also eligible for tax exemption.

With these multiple tax savings plans available for you, now you should have no problem in planning your taxes to reduce your income tax liability. Not only will you get to claim the deductions against your present income tax liability but also get to create a corpus for a secured financial future.

Also Read: How to Save Income Tax on Your Salary?

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