Smart Strategies to Lower Your Taxable Income
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While juggling your finances to make ends meet, consider the many advantages of tax investments. Aside from tackling fiscal concerns by freeing up extra revenue, they allow you to invest your money in secure investment schemes.
The higher you rise through the ranks with spikes in your earnings, the more taxable income you likely possess. Unfortunately, this is a bittersweet truth for those who heavily rely on their income to finance everyday living. While paying taxes is our responsibility as Indian citizens, the government recognises the financial hardships of its people.
By creating various provisions for its taxpayers, the government has prevented financial impediments that could potentially affect livelihoods. With different investment schemes adhering to the Income Tax Act of 1961, you can easily avail of benefits like tax exemptions and savings.
Also Read: Tax Planning for the Next Financial Year for the Salaried
5 Investments for Reduced Taxable Income
Explore a range of government-backed secure and long-term investment schemes for maximum savings and tax benefits.
Tax Saver Fixed Deposits
This timeless favourite of low-risk appetite investors is like any other fixed deposit. However, a Tax Saver FD provides you with the benefits of tax deductions up to ₹ 1.5 lakhs under Section 80C of the Income Tax Act, 1961
Key Features
- Interest Rates: 5.30% to 6% (varying across financial institutions)
- Tenure: Ranging between 5 to 10 years (lock-in period of 5 years)
- Min. Investment: ₹ 100
- Eligibility: Available for Indian Residents, Individuals, and Hindu Undivided Families (HUF)
Public Provident Fund (PPF)
The Public Provident Fund was introduced in 1968 to encourage the habit of saving and investing among Indian citizens. You can receive considerable returns along with income tax benefits by investing in a PPF.
Key Features
- Interest Rate: 7.1% p.a. (compounded annually)
- Tenure: Lock-in period of 15 years; With the option to extend the tenure in blocks of 5 years
- Min. Investment: INR 500
- Eligibility: Indian Residents, but NRIs and HUFs are not eligible
- Additional Information:
● Only in the case of minors, individuals can hold more than one PPF account. NRIs or HUFs with an existing PPF account will receive the matured returns without further extensions
National Pension Scheme (NPS)
Ensure a regular income for your retirement years, by contributing to an NPS during your active working years. To support your endeavour, the government provides you tax exemptions of ₹ 1.5 lakhs on the contribution paid towards the fund.
Key Features
- Interest: 9% to 12% p.a. (depending on the bank)
- Tenure: Contribute to this scheme till the age of 65
- Min. Investment: ₹ 250
- Eligibility: Indian Citizens between the age of 18 to 65 years
- Additional Information:
● Through 80CCD (1) of Section80C, salaried individuals and the self-employed can claim deductions of 10% and up to 20% on gross income, respectively
● Salaried individuals can claim deductions on employers’ NPS contribution or 10% of basic salary and Dearness Allowance (DA)
● Section 80CCD(1B) allows individuals to claim an additional amount of ₹ 50,000 on any other self-contributions toward NPS
Equity Linked Savings Schemes (ELSS)
An ELSS is an open-ended Equity Mutual Fund that primarily invests in equities and equity-related products. Under Section 80C, they qualify for tax rebates of up to ₹ 1.5 lakhs, with a yearly saving of ₹ 46,800 in taxes.
Key Features
- Interest: No fixed interest rate
- Tenure: Lock-in period of 3 years, no maximum tenure limit
- Min. Investment: ₹ 500
- Eligibility: Available for Indian Residents, NRIs and HUFs
Senior Citizens Savings Schemes (SCSS)
These schemes provide Indian senior citizens with retirement benefits by allowing them to invest a lump sum in the scheme. Unlike Tax Saver FDs, it offers you comparatively higher returns. Furthermore, you can claim deductions of up to ₹ 1.5 lakhs under Section80C.
Key Features
- Interest: 7.40% p.a.
- Tenure: Min. tenure of 5 years, with the option to extend by 3 more years
- Min. Investment: ₹ 1,000
- Eligibility: Indian Citizens over the age of 60, retired defence personnel above 50 or below 60 years, and retirees between 55-60 years, who opted for the Voluntary Retirement Scheme (VRS)
Consider applying for any of the above tax investments and receive sizeable rebates or tax exemptions for boosted cash flow. For best results, align these tax investments with your financial goals!
Frequently Asked Questions
Which type of benefit reduces taxable income?
Benefits that reduce taxable income by utilising HRA, LTA, and reimbursements. Additionally, you can further decrease your taxable income with the help of deductions under Section 80C, 80D, and 80E.
How can I reduce my current taxable income?
Reduce your taxable income by investing under Section 80C and claiming deductions under Sections 80D, 24(b), 10(13A), 80CCD, and 80E.
How to avoid tax on salary?
Avoid tax on salary by claiming deductions under Sections 80C, 80D, 80CCD, and for LTA.
How to reduce tax in the old regime?
Invest under Section 80C, claim health insurance under Section 80D, deduct home loan interest under Section 24(b), claim HRA, utilize the standard deduction, and claim education loan interest under Section 80E.
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