Salaried individuals sometimes may end up paying too much tax. A lot of people spend their hard-earned money paying taxes because they are unaware of income tax rules. The only time they learn about tax payment is when they receive an e-mail from the company HR to submit investment proofs to avoid deductions. Having said that, you may not require to read the entire income tax act. With some awareness and knowledge about tax saving instruments, salaried individuals may be able to save themselves from getting taxed.
To avoid paying taxes, one may consider planning their finances well in advance. Planning taxes in advance may allow an individual to take time and choose a prudent investment avenue. This may also avoid charting last minute investment strategies, which may or may not prove effective.
Every salaried individual is taxed based on the tax slab they fall under. Individuals are taxed based on their annual income and further categorized under various tax slabs. There are numerous ways that may help an individual save tax. Under Section 80C of the Indian Income Tax Act of 1961, investors can invest up to Rs. 1.5 lakh in various tax saving avenues that come under Section 80C and claim tax deductions.
If you are a salaried individual looking for some tax saving investment options, read further:
According to the Indian Income Tax Act, investors can invest a maximum of Rs. 1.5 lakh in various tax saving instruments that come under Section 80C.
Tax-saving fixed deposits, Public Provident Fund (PPF), National Saving Certificate (NSC), life insurance premiums like ULIPs, National Pension Scheme (NPS), Equity Linked Saving Scheme (ELSS), are some of the tax-saving instruments that come under Section 80C where investors can invest up to Rs.1.5 lakhs in each and claim tax deductions for the same.
ELSS is the only mutual fund scheme which comes under Section 80C. If you are someone who wishes to save tax and also wishes to invest in the equity market having the potential of making some extra income, you may consider investing in ELSS.
Equity Linked Saving Scheme or ELSS is a mutual fund scheme that comes with a mandatory lock-in period of three years. With ELSS, you may seek capital appreciation through equity investments along with tax-saving benefits. If your annual income is subject to tax deductions, an ELSS scheme might be able to help you bring down your taxable income by Rs. 1.5 lakhs. ELSS primarily invests in equity, and investors should bear in mind that returns from the equity market are never guaranteed.
Let us take an example to understand how ELSS might help you save taxes:
Rajesh Mishra works as a senior marketing manager in a private firm with a taxable income of Rs. 12 lakh a year. That lands him in the 30% tax bracket. Suresh chooses ELSS and plans to invest a total amount of Rs. 1.5 lakh. According to 80C of the Indian income tax act*, Suresh’s taxable income has now come down to Rs. 10.5 lakh because he may claim that he has invested 1.5 lakh rupees in an ELSS scheme.
According to Section 80C, you can claim a deduction upto the sum you invested in an ELSS from your annual income or Rs. 1.5 lakh, whichever is less, to decrease your overall taxable income and hence, saving taxes. What many investors fail to realize that though ELSS is primarily a tax saving scheme, may turn out to be a decent investment option too. If an individual plans to stay invested longer, they may gain some returns from ELSS. Investors should also be aware that gains derived from ELSS are categorized as long term capital gains.
Planning taxes isn’t rocket science, but individuals must try and not take it lightly either. After all, it is your hard-earned money which is getting deducted, an amount which could have been used for a better purpose. Also, if you manage to invest your money wisely, you might be able to gain some profits too. Invest if possible, it might be better than paying taxes.
*As per the present tax laws, eligible investors (individual/HUF) are entitled to deduction from their gross income of the amount invested in Equity Linked Saving Scheme (ELSS) up to Rs.1.5 lakhs (along with other prescribed investments) under section 80C of the Income Tax Act, 1961. Tax savings of Rs. 46,800 mentioned above is calculated for the highest income tax slab. Investors are advised to consult his/her own Tax Consultant with respect to the specific amount of tax and other implications arising out of his/her participation in ELSS
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
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