For someone who makes money, tax preparation is an essential component of financial discipline. Payrollers typically consider investment strategies and methods to reduce income taxes twice a year, at the beginning of the financial year and in the final quarter of the fiscal year. Employers request that employees submit an investment declaration at the start of each new fiscal year. To fulfill this request, employees must furnish documentation of their investments made during the final quarter of the previous fiscal year.
Tax professionals believe that preparing taxes shouldn’t be done at random or left until the first or last part of the year. Making poor investment selections due to last-minute tax preparation could happen to you. In addition to helping you save money, a well-thought-out investment plan with tax savings in mind also ensures that you comply with income-tax regulations.
There are plenty of options on the market if you’re looking to invest in ways to save taxes. Taxpayers are big fans of tax-saving options like Sukanya Samriddhi Yojana, ULIP, PPF, NPS, and ELSS.
Because NPS offers substantially better returns than other investment plans, it is a particularly popular choice for investors. Subscribers can also choose from a variety of pension plans and investment possibilities. By enabling a taxpayer to save tax under three separate provisions of the income tax legislation, NPS provides additional tax benefits. Under Section 80CCD(1), a deduction for contributions of up to Rs 1.5 lakh may be made. Under Section 80CCD(1B), there is an extra deduction of up to Rs 50,000. Last but not least, Section 80CCD(2) provides employees with significant tax advantages on investments made via their employer.
PPF is an investing tool that allows you to save money on annual taxes while building a retirement corpus. PPF now provides an annual interest rate of 7.1 percent. It is one of the most popular long-term tax-saving investments on the market today, with the ability to deduct up to Rs 1.5 lakh in taxes every year under Section 80C. During a financial year, a PPF subscriber has the choice to pay the entire payment in one lump sum or over several installments. Three elements make up this scheme: safety, returns, and tax savings.
ULIPs are insurance plans that offer two benefits: a life insurance policy to safeguard your family’s finances in the event of an untimely death and the growth of your funds to help you achieve long-term objectives. ULIP is thought to be more flexible than NPS since it does not have a lock-in clause that lasts until retirement and permits periodic withdrawals. One drawback of NPS is that investors can switch pension fund managers, but policyholders are locked in with their current insurer for the duration of the policy. A tax deduction of up to Rs 1.5 lakh can be claimed on premiums paid towards a ULIP under Section 80C of the income tax regulations.
A taxpayer may claim an annual deduction under Section 80C of the Income Tax Act, 1961 of up to Rs 1.5 lakh from an ELSS mutual fund, often known as a tax-saving mutual fund. With its three-year lock-in term, ELSS provides a chance to reduce taxes and increase returns. Additionally, it allows the investor to choose between making lump sum or SIP investments. When units are redeemed from an ELSS, long-term capital gains tax is levied at a rate of 10%; however, if the total gain is less than Rs 1 lakh, there is no tax due.
For many years, the Sukanya Samriddhi Yojana (SSY) offered a greater interest rate than other savings schemes. SYY was introduced to provide financial stability for the girl child, and it now offers an annual interest rate of 8.2 percent. Similar to PPF, there is a yearly investment ceiling of Rs 1.5 lakh and tax-free interest earned. An SSY account has a 15-year payment period and a minimum 21-year maturity date. On premiums paid towards SSY, tax deductions of up to Rs 1.5 lakh are permitted yearly.
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