Tax saving sections in Income tax are one of the ways to save money and Invest. If you are someone looking into investments purely from tax saving sections point of view then request you to go through this Article. This article will help you to find the best tax saving investments to improve your personal finance and get better returns.
Why Tax saving Sections ?
People save money and invest so that it is there for their future. If you look at LIC, Post office schemes etc which were predominant and available since independence, all are mostly long term in nature. Investment period of these schemes were around 15 to 20 years and more.
This period suits your investment goals like child education, buying home and even for retirement.
Now it is clear that tax saving sections are one of the ways to save and invest to achieve your financial goals.
When you should start saving tax :
When ever your income increases to paying tax, you can start thinking about investing under tax saving sections.
If you had just started your career or your income had increased just now means it is better to focus on Section 80C. You can save 1,50,000 and more than that you can invest for your future financial goals.
Tax saving Sections & Investments
Below are the primary tax saving sections which can be utilized by everyone,
Section 80 C
You can save upto 1,50,000 with this section. Primarily focused on saving & investing for the future.
If you are working, by default Provident fund will be deducted under this section. You can also open a PPF account with any nationalized banks and it has lock in of 15 years period with an extension of another 5 years.
Your money paid for ULIP or LIC or Any Life insurance policy can be shown under this section. The lock in period varies from 7 years to as long as 15 or 21 years depending on the Insurance policy.
Tax saver mutual fund or ELSS is invested in mutual fund specifically for tax saving which has minimum lock in of 3 years.
Payment made to Sukanya samriti scheme also comes under this section. You can invest in the name of the girl child and amount can be withdrawn at the age of 18 and 21.
National Savings certificate or NSC bonds issued by post office will also come under this section only.
If you have child, the tuition fees paid to them can also be claimed under this section.
Section 80C has so many investment and claim options, use it wisely to save tax.
Section 80 D
Premium payment towards health insurance can be shown under this section. You can pay for yourself, for your family and for your parents too.
You need to pay the premium every year to keep the policy active.
The amount of interest you pay for home loan can be shown under this section. The maximum allowed amount for tax saving is Two lakhs.
You can utilize this section only when you get a home loan. This is not mandatory to save tax.
Section 80 CCD (1B)
Additional 50,000 investment can be shown under this section using NPS investment in Tier 1 Account.
Donations made to charitable organizations which are registered under section 80C are eligible for tax deductions.
Linking tax saving with Goals :
When you link tax savings with financial goals it can help you to choose right investment product.
All these mutual funds, ULIP or Insurance policies, Post office schemes etc are all investment products. You should choose your financial goals and then look at investment products which can help you to reach that financial goals.
If you want one crore in 15 years then Mutual fund can be one of the option which can save tax and also help in achieving that financial goal.
If you are choosing an Insurance policy like ULIP, you may need to pay for little extra premium which may become costlier considering your other expenses.
When you postpone buying home, you can save tax by showing the interest portion of your home loan EMI. This is one of the biggest financial goal for many. Only thing to remember is to have monthly EMI which is 35-40% of your monthly income. This makes you to allocate money for other expenses and also to invest.
Best tax saving Investments in 2023 :
1) Start investing your money in Equity linked savings schemes or ELSS. As it has less lock in of 3 years period. This can be allocated for all your long term investment goals – Section 80C
2) Get pure Term Insurance or Life Insurance this year – Section 80C
3) Get Mediclaim or Health Insurance policy – Section 80D
4) Invest in NPS, if you are falling under 30% tax bracket – Section 80CCD (1B)
5) Donate for a purpose every year and claim tax under Section 80G
In total below are the total tax savings you can make this year,
Section 80C – 1,50,000
Section 80D – 25,000/50,000
Section 80CCD(1B) – 50,000
Section 24 – 2,00,000
Section 80G – No limits
You can try to save tax only in these sections and after this is exhausted, you need to pay tax. Invest wisely for your future and stop worrying about the taxes you are going to pay year after year.
This podcast is hosted by Ganesan Thiru. I provide solutions for Investing in Mutual Funds, Stocks, Fixed Instruments, NCDs, Commercial Real Estate etc.,
I provide investments, insurance and loans.
Send in a voice message: https://anchor.fm/unlimitedwealth/message