By Neha Mehrotra
Following the adage, ‘A penny saved is a penny earned, tax planning emerges as a means to preserve income and capitalise on potential savings. As the financial year 2023–24 enters its final stretch, strategic financial planning becomes crucial for optimising income tax savings.
The Income Tax Act provides deductions for various investments, savings, and expenditures incurred by the taxpayer in a particular financial year that not only foster financial growth but also offer substantial tax benefits. These provisions not only contribute to financial growth but also present significant opportunities for tax benefits. We have listed a curated selection of investment options tailored to maximise income tax savings for the upcoming fiscal year. Take a look.
Public Provident Fund (PPF)
The PPF is a popular and tax-efficient investment option for those who are willing to commit to a long-term savings plan. If you invest in a public provident fund, you can get a tax exemption up to Rs 1.5 lakh under Section 80C of the Income Tax Act. Not only the invested amount but also the interest earned on the PPF is exempt from taxation. The PPF interest rate is calculated by the government and remains fixed for the entire period of that quarter. However, note that PPF matures after 15 years, which means it is a long-term investment scheme.
Equity-Linked Savings Scheme (ELSS)
Investing in equity-linked savings schemes (ELSS) allows for a tax deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. With a minimum investment often as low as Rs. 500, ELSS is accessible to a wide range of investors. You can choose to invest in ELSS either as a lump sum or through monthly Systematic Investment Plans (SIP). . ELSS has a three-year lock-in period, the shortest among tax-saving options, making it a flexible and tax-efficient investment strategy.
Sukanya Samriddhi Yojana (SSY)
The Sukanya Samriddhi Yojana (SSY) provides tax benefits under Section 80C of the Income-tax Act, allowing a maximum yearly deduction of Rs 1.50 lakh. Not only is the principal investment eligible for tax savings, but the interest earned and maturity benefits are also tax-exempt. This means you save on taxes when you invest and enjoy tax-free income upon withdrawal. However, eligibility is limited to parents with a daughter under ten years old. The minimum investment period is 15 years, and the scheme matures in 21 years, and withdrawals are permitted once the girl reaches 18 years.
National Savings Certificate (NSC)
The National Savings Certificate is also a popular post office scheme that provides guaranteed returns. In this scheme, you can get the benefit of a tax exemption of up to Rs. 1.5 lakh on the principal amount and the reinvested interest amount under Section 80C. The investment can start at Rs 1000, and there is no maximum limit for investment. You can easily open a NSC account at any post office in the country. At present, interest is being given on it at a rate of 7.7 percent.
Health Insurance
If you’ve purchased health insurance, you’re eligible to claim the premium under Section 80D. If the policy covers you, your spouse, children, and parents, you can claim up to Rs 25,000, provided your parents are under the age of 60. For senior citizen parents, the exemption limit increases to Rs 50,000. Additionally, you can claim a deduction of up to Rs 5,000 for health check-ups, but it cannot exceed the health insurance premium. This provision offers tax benefits based on the health coverage you extend to yourself and your family, with varying limits depending on the age of the insured individuals.
Save Tax on Home Loans
Under the provisions of the Income Tax Act of 1961, the government offers a number of house loan tax exemptions and deductions. A taxpayer can deduct both the interest paid on a house loan as well as the principal amount that was repaid on the loan. In the case of self-occupied property. Section 24 allows a deduction on the interest paid on a house loan up to a maximum of Rs 2 lakh in a given fiscal year. In the case of self-occupied property, interest payments above Rs 2 lakh would neither be carried forward nor offset against any other income head, such as capital gains, salary, etc.
