Salaried employees need to thoroughly chalk out their annual tax plan. They are required to make some important decisions at the beginning of each financial year and ensure they adhere to their plan. But tax planning takes a lot of discipline. You must ensure that your investments can do both; exempt you from certain taxes and safeguard your investment objectives so that you can fulfil your financial goals. Let us look at some of the best tax saving options in India for salaried employees.
Maximise 80C- PPF and ELSS
PPF or Public Provident Fund account holders can avail tax benefits by depositing as much as ₹1.5 lakh per year in their PPF account. You can deduct the amount you invest in PPF from your income and reduce your taxable income. The interest earned on PPF deposits is also tax-free. ELSS or Equity Linked Savings Scheme is another worthy investment option that provides income deductions of up to ₹1.5 lakh per financial year. It is one of the most popular options among 80C investments despite the introduction of long-term capital gains on equity investments last year. Over the long term, ELSS has the potential to provide higher returns than most other investments and comes with a shorter lock-in tenure of only three years.
Maximise 80C- PPF and ELSS
A social security initiative launched by the Central Government, the National Pension Scheme or NPS enables investors to avail tax benefits under various sections of the Income Tax Act such as:
- Under Section 80CCD (1) – In a financial year, investment of up to ₹1.5 lakh is eligible for deduction, within the overall ceiling of ₹1.5 lakh under Section 80C.
- Under Section 80CCD (1B) – Investors are eligible for an additional tax benefit on investments up to ₹50,000. If a taxpayer contributes over ₹1.5 lakh to NPS, the amount exceeding ₹1.5 lakh may be claimed as a deduction.
- Under Section 80CCD (2) – Exceeding the ceiling limit of ₹1.5 lakh and the additional limit of ₹50,000, investors are also eligible for deduction on employer contribution up-to 10% of salary (basic + DA) without any monetary limit.
Maximise Health Insurance Savings
For tax saving options other than 80C, you can put your money in health insurance. Buying health insurance is as wise as it is vital because it safeguards your family and you during medical emergencies by covering the cost of the treatment. Apart from offering services like cashless hospitalisation facility, it also comes with several tax benefits. You can avail income tax exemption under Section 80D, based on the premiums you pay on health insurance policies purchased for yourself, your family (spouse and children) and parents. However, the deduction depends on the person insured. Payment should be made through methods other than cash.
- If you are under 60 and purchasing health insurance for yourself, your spouse and dependent children, you are eligible for a maximum deduction of ₹25,000.
- If you are paying for health insurance for your parents under 60 years of age, you become eligible for an additional deduction of ₹25,000. If they are over 60, you can claim up to ₹50,000
- If you are over 60, you can claim a deduction of ₹50,000 on premium paid towards health insurance for yourself and your family. If you are also paying the insurance premiums for your senior parents, then you are eligible for an additional deduction of ₹50,000 making your total savings ₹1,00,000.
- You can also claim up to ₹ 5,000 (paid in cash) for your medical check-up, within the above-mentioned limit.
Take a joint home loan- the big tax saver
Joint home loans can also prove to be a great tax saving option for salaried employees. If you and your spouse, sibling or any other family member are on a payroll; you can avail several tax saving benefits provided both applicants are registered as co-owners of the loaned property, co-borrowers of the loan and the construction of the property is completed. Each co-owner is eligible for a maximum deduction of ₹2 lakh on interest. The total payable interest on the home loan is allocated as per the ratio of ownership held by each owner. If you and your spouse purchase a home and are paying ₹5 lakh in interest, with each of you holding a 50:50 share in the property, you can both, individually claim ₹2 lakh each i.e. a total of ₹4 lakh as joint owners, in tax returns.
Maximise HRA benefit
All salaried employees can avail tax exemption on a part of their HRA or House Rent Allowance as per Section 10 (13A) of the Income-tax Act. HRA benefit is provided to those employees living in rented homes. For HRA tax exemption, the deduction is the lowest amongst the following:
- The actual HRA received from your employer
- Total rent minus 10% of salary (this includes basic + Dearness Allowance, if any)
- Rent equal to 50% of the salary in metro cities or 40% of the salary in non-metro cities.
Individuals paying over ₹1 lakh towards house rent can claim HRA tax exemption provided they furnish the property owner's PAN details, along with rent receipts.
Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
The Top ELSS Funds for FY 2019-20January-February is the season when most salaried employees do their last-minute tax-saving investments since they must submit proof of it to their company by the end of February. A popular investment for tax-saving is the Equity-Linked Saving Scheme (ELSS). ELSS are mutual funds schemes that have a three-year lock-in and offer tax benefits under Section 80C of the income tax act. You can save up to Rs 46,000 in taxes if you are in the highest tax bracket and invest Rs 1.5 lakh in a financial year in ELSS.So, how do you choose the top or best ELSS funds in India? One of the ways to evaluate any mutual fund is its performance over time – one year, three years, five years. While past performance is not a guarantee for the future, it acts as an indicator, other things being equal.To get the top ELSS funds for FY 2019-20, we must look at their overall performance for the year, and the returns they have been able to generate.IndiaNivesh experts have curated a list of the top ELSS funds in India. These funds have not only been among the top performers during the last year but have shown consistent performance over the years. Read more: - How to save Rs 45k by investing in ELSS! Disclaimer:Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
How do you choose an investment that helps you save tax? When you research, you should ideally look at an investment that will help you build a corpus over time. Some of you may take a conservative route by investing money in a Public Provident Fund (PPF), while others may opt for an instrument such as Equity Linked Savings Scheme that may be subject to market risks but aid you in growing your corpus at a quicker rate. Both PPFs and ELSS offer tax benefits to the investor. Let us find out the best tax saving investment options between the two. But before we begin the comparative study, let us understand PPF and ELSS briefly. ELSS mutual funds and PPFELSS offers tax exemption under Section 80C of the Income Tax Act. In ELSS, a major portion of the fund is invested in equities and the fund’s performance depends upon the stock market since returns accrued from ELSS funds are market-linked. PPF, on the other hand, is a more traditional investment instrument that the Government of India introduced to encourage people to inculcate the discipline of saving money, especially for their old age. Now that we know the definitions of ELSS and PPF, let us compare the two tax-saving investment instruments to find out which is a better investment option. There are seven factors to help us make the differentiation. ELSS vs PPFRisk factorPPF is backed by the government of India which makes it a safe investment, whereas ELSS funds are equity linked, which means that they are subject to market risks. Tax benefitsPPF investments qualify for EEE (Exempt Exempt Exempt) i.e. the investor is exempt from taxes while investing, accumulating and withdrawing his investment, whereas you have to pay a 10% long-term capital gains tax on profits of over Rs 1 lakh for ELSS investments. Returns accruedThe rate of interest on PPF investments is declared by the government of India every year. This is typically between 7% and 8% per annum. ELSS, on the other hand, is market-linked which is why the returns may vary depending upon the scheme chosen by the investor. However, ELSS investments can offer returns ranging from 12% to 14% per annum. Lock-in periodPPF investments come with a minimum lock-in period of 15 years, with partial withdrawals permitted after the completion of six financial years. ELSS mutual funds on the other hand, have a mandatory lock-in period of 3 years with no room for premature withdrawals. Investment amountYou may invest a minimum of ₹500 and a maximum of ₹1.5 lakh in PPF per annum. This investment can be made in lump sum or in instalments so long as it doesn’t exceed the maximum amount. With ELSS, there is no limit to how much you can invest however you are eligible for tax deduction on investments not exceeding ₹1.5 lakh per financial year. Maximum investment tenureYou can continue to invest in PPF funds for a maximum tenure of 5 years, after which you can extend it for 5 years at a time. However, there is no maximum tenure with ELSS investments. The verdict – ELSS vs PPFAs is evident, PPF investments are safer but they offer lower returns in the long-term as compared to ELSS. While the tax benefits are better for PPF investments, investors can probably earn higher returns with ELSS investments, so long as the investor is willing to risk market volatility. The final verdict is that although ELSS can create wealth faster for the investor in the long-term, the investment should be made as per your financial goals and personal preferences. DisclaimerInvestment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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