Ideas To Save My Income Tax-Investments to
save tax-Helpful for your personal finance
I will tell you about how you can save your income tax.If you are a salaried employee and you pay
income tax,then I will tell you how you can pay less tax.
If you are an employee, then it may be possible that you already know about these methods.But in
case you don't, it is very important that you should.And if you plan on working in the future, then you
should definitely know about them.Come let's see!Friends,
Tax Deduction
If you are an employee or plan to be one in the future,you can save on income tax by investing in the
right places.The Section 80C of our Income Tax Act, inform us about the places where you can invest
to pay less tax.It is known as Deduction.
If you invest in these places, you will get a deduction from your income.So that you don't have to pay
tax on that amount.So basically you are saving on your income tax. Section 80C says that if you
invest
a total of ₹1.5 lakhs in specific things,then you won't have to pay tax on that amount.
So I am going to tell you about those specific things.And will also tell you about the most popular and
the
the safest options among these.
Employees provident Fund (EPF)
The first option is EPF. Employees Provident Fund.It is one of the older and popular schemes
introduced by the Government.You can apply for an EPF if you draw a salary,whether you are
employed somewhere or self-employed.
As per this scheme, 12% of the salary that you draw is invested in EPF,while your employer invests an
additional 12% on your behalf.So in total 24% of your salary goes into EPF. Of the 12% that you pay,
you don't have to pay tax on ₹1.5 lakhs per year.And the amount that the employer pays on your behalf,
you don't have to pay tax on any of it.So you save a lot on your income tax if you invest your salary in
EPF.
Once you invest in EPF, you earn an interest of around 8.5% on your savings.The exact interest rate is
decided by the Government every year and may fluctuate a little,In the Financial year 2017-18,
it was 8.55%.When can you withdraw the money from EPF?Generally there is a lock-in period of
5 years.Which means you cannot withdraw the money before 5 years .Even after 5 years there are a
few conditions limiting the amount of money you can withdraw,according to the reasons for withdrawal.
For example, if you need money for your child's education or marriage,then you can withdraw money
from your EPF account.But generally this policy was made by the Government to provide for you after
your retirement.When stop working, you can withdraw your money from EPF. That was the purpose for
which it was created and named after.While you are an employee, you invest in Employees Provident
Scheme,and when you retire and stop drawing salary, you can use this Fund.Investing in EPF is very
simple.Simply go to your employer and ask them to register you for an EPF, if they haven't already.
Once that is done ask for the UAN number.
After which, download the Umang app.This app was introduced by the Government.It shows the
monthly balance of your EPF account and the interest earned.You can go to this section of the app.
This app was created by the Government rather than a private company.You can see all the details
here.If you want to know more about EPF,I suggest that you check out the Frequently Asked Questions
section of this Government website. that you have, here.Generally I would like to say, if you are a
salaried person,and you can afford to save 24% of your salary,this is a good option for saving and you
should definitely go for it Similar to EPF,
Public Provident Fund(PPF)
Another amazing scheme by the government for tax saving is (
applicable for everyone and it is very simple.Basically you can invest ₹1.5 lakhs in a year per person.
And you can get returns at 7.6% of interest rate.The government decides its exact return rate every
year, like EPF.But it sticks to around 7.6%.You can start a PPF account for every person in the family,
even if you have kids of less than 18 years old,and invest ₹1.5 lakhs per year in the PPF account on
their behalf.For example, if you invest ₹1.5 lakhs every year for 10 years,and the interest rate remains
7.6%,after 10 years your investment amounts to ₹15 lakhs.But you get ₹23 lakhs.So you can see the
huge difference between ₹15 lakhs and ₹23 lakhs So I will recommend that you should definitely go
for a PPF.And the best thing is that on the ₹23lakhs that you withdraw, you do not have to pay any tax.
But if you had invested the same amount in some other place, like in a fixed deposit or stock market,
you would have had to pay tax on the returns.That's the difference.So how do you register for a PPF?
It is very easy, you can go to any post office or a designated bank to register for PPF.There are no set
rules about how you have to invest in the PPF.You can deposit a certain sum monthly or yearly. The
lock-in period for PPF is 15 years.It is a long term investment.If you want to withdraw the full amount
from the PPF account then you can do so only after 15 years.You can make partial withdrawals before
the 15 years but only after the maturity period.If you want to know more about this maturity period or
PPF,then I have linked the website for the State Bank of India,they have explained PPF very
thoroughly.It is in the description as well for you to check it out.Another major advantage of EPF and
PPF is that they are Government schemes.And are the safest options to invest because of zero risk.
The market may fluctuate but your money will be safe.The returns in the stock market or any other
place are unpredictable.But here the return is fixed and the risk is zero.
Equity Saving Schemes(ELSS)
The third method of investment in a tax saving scheme is ELSS.Equity Linked Saving Schemes.
ELSS is a type of mutual fund and is also covered under Section 80C.If you invest money in this,
₹1.5 lakh of the investment per year will be exempt from tax.But it is linked with the market, so the
returns will fluctuate with the market.Potentially, it can give returns much higher or lower than EPF or
PPF,because it depends on the market.How can you invest in ELSS?.You can go through an Asset
Management Company,or use an app like the GROWW app.GROWW app is for Mutual Funds where
you can find and filter several mutual funds.The ratings of different mutual funds are also available.
including ELSS.So you can look into different types of ELSS funds and check their reviews.GROWW
app shows you the historical performance of all the mutual funds.That is the return rates of the mutual
fund in the last few years.You can check this for every mutual fund.If you invest in ELSS, check its
historical performance.However, you cannot predict the future of the market based on historical
performances,but you can get an idea of what kind of returns to expect.For example, assume that you
invest ₹2 lakhs in an ELSS which increases to ₹2.5 lakhs after 3 years.You do not have to pay tax
for ₹1.5 lakhs of it,nor on the interest that you earn in the 3 years.However, there is a new tax of
10% introduced in 2018, Long Term Capital Gains tax.It will be applicable on the amount that you
withdraw.In case it exceeds more than ₹1 lakh.There will be no taxes other than this.The lock-in period
for ELSS is 3 years.
Fourth option for tax savings is Life Insurance.But life insurance is not considered an investment,
because you do not invest in life insurance for the returns.You invest in life insurance for security
.If you invest in life insurance, it is also included under section 80C.You do not have to pay tax on
₹1.5 lakhs of your investment.My suggestion while taking a life insurance would be to take pure
insurance,Known as Term Insurance .Nowadays, there are many life insurance companies who
collaborate with the banks,and try to sell schemes where they show high returns of investment to you
.However, stay away from these things because they have high risks and hidden charges.
Unfortunately, the ₹1.5 lakhs limit I am talking about in this , is for the total investment.Which means,
for example, if you invested ₹10 lakhs in EPFs, PPFs, Life Insurances and ELSS,than out of the
₹10 lakhs, only ₹1.5 lakhs per year would be exempt from tax.As per the Section 80C.Similarly,
there is a section 80D for health insurance, whose maximum limit is ₹50,000.If you invest up to
₹50,000 in health insurance it will be tax free.If you have kept your money in a normal savings bank
account,and you get interest on it at around 3-4%,the interest that you get there is exempt from tax
till ₹10,000 rupees. This is defined in section 80TTA.This is a new section in the Income Tax Act.Which
states that the interest from saving account will be exempt from tax till ₹10,000.These were the most
popular ways of saving taxes, which is a recommended by the Government itself.
If you want to know more about these methods and the benefits applicable to a salaried person,
then visit this link.This is a link to a Government website.incometaxindia.gov.init.You will get to
know more about the benefits available to a salaried person, here.As a summary, you can refer to this
table about the rate of return, risks and lock-in period for EPF, EPF and ELSS.My final suggestion
would be to read up on the topic and research on them,only when you understand these methods
properly, take any action.
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