Imagine a monster under your bed—a shadowy figure that interrupts your rest and symbolizes all the financial concerns you attempt to avoid. Doesn’t tax-paying feel like that sometimes? A threatening presence that disrupts your calm and causes you to search for a resolution.
But imagine if you possessed a hidden advantage, “a protective shield.”
In India, several tax-saving schemes function as protective shields against the monster “tax.”. However, with numerous choices available, selecting the correct one can be perplexing, similar to choosing the ideal weapon in a dark room!
This blog is your shield. We’ll break down the different tax-saving schemes for individuals available in India for 2024, helping you find the ones that fit your wallet and goals. So, grab your financial flashlight and get ready to banish the tax monster with the perfect plan!
How do you get started?
Whenever you are starting something new and crucial, you look for a mentor or helping hand who can guide you and help you understand the venture better.
Similarly, for tax planning, it is advisable to get the help of a wealth manager who can guide you through the best schemes and suggest the best ones aligned with your goals and objectives.
Now that you know what should be the ideal first step, further is the explanation of some of the best schemes for tax saving for individuals in India.
National Saving Certificate (NSC)
You must have been to a post office once in your lifetime to post a letter or a parcel. But with the same post office you can invest in an instrument/scheme called National Saving Certificate. It can be done in your name, either as a minor or jointly with another adult.
If you are someone who is seeking a secure investment option that offers consistent return and tax savings, you can opt to invest in NSC. It has a set lock-in period of five years. The rate of return of NSC as of quarter 1 of the financial year is 7.7% per annum, revised by the government every quarter. It is only slightly more than the rate of bank Fixed Deposit. There is no upper limit on the number of NSCs that can be purchased.
A tax benefit of up to Rs. 1.5 lakh can be claimed under Section 80C of the Income Tax Act.
Public Provident Fund (PPF)
If you are interested in beginning to invest, the Public Provident Fund can be an excellent choice. Consider PPF as a unique piggy bank offered by the government. Within a year, you can deposit at least Rs. 500 and up to a maximum of Rs. 1.5 lakh. After placing your money into the piggy bank, you are not allowed to withdraw it for a minimum of 15 years. After 15 years, you can finally crack open the piggy bank and use the accumulated money. By investing in PPF a deduction of up to 1.5 lakh can be claimed under Section 80C of the Income Tax Act. The government reviews the interest rate every quarter to verify that your savings are increasing effectively. As of quarter 1 of the financial year 2024-25, the interest rate is 7.1%, almost the same as bank fixed deposit.
ELSS Mutual Funds
Among the multiple choices you have for investments, one of the best among those options is mutual funds. Your capital is pooled with multiple people and invested in various asset classes, such as bonds, stocks and many other securities which is managed by a professional known as a “fund manager”.
One such mutual fund that is the only tax-saving mutual fund is ELSS Mutual Fund. With ELSS, you can not only accumulate a good amount of wealth but also get a tax deduction, which you can say is a reward for being a good saver. A tax deduction of up to Rs. 1.5 lakh under Section 80C of Income Tax is allowed on ELSS. Though ELSS has a lock-in period of 3 years, it is generally recommended to keep the money for at least 5 years as the ideal horizon for equity is 5 years.
Being a mutual fund, it carries some level of risk and is subject to volatility as it is invested in equity. Even though they are slightly risky, ELSS mutual funds have great returns where the average returns of the last 7 years is 16%.
Being a mutual fund, it carries some level of risk as it is invested in equity.
Senior Citizen Saving Scheme (SCSS)
For instance, you are someone over the age of 60, you should invest in another government-backed scheme called the Senior Citizen Savings Scheme. It is a scheme that helps senior citizens to cater their needs while also providing a good tax-saving option. One can just start with a minimal amount of Rs. 1000 and invest up to 30 lakhs initially for 5 years which is extendable to a further 3 years. You can claim a deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act.
National Pension System (NPS)
Another option that is being promoted a lot these days which you can opt for is the National Pension Scheme (NPS). It is a scheme that is backed by the central government of India and is run by the Pension Fund Regulatory and Development Authority (PFRDA).
If you are someone who is between the age of 18-70 years you can benefit from this scheme as the old tax regime allows a tax deduction up to Rs. 1.5 lakh under Section 80CCD(1) and an additional deduction of Rs. 50,000 under Section 80CCD(1b) and 80CCD(2) of the Income Tax Act. Under the new tax regime, NPS only benefits under Section 80CCD(2). You can withdraw only 60% corpus after maturity and the remaining 40% will be your pension.
The minimum lock-in period of the National Pension Scheme is 3 years.
Conclusion
Tax planning isn’t just about saving a few bucks. It helps you understand the tax rules and find ways to keep more of your hard-earned cash. It’s like having a secret weapon to navigate the taxpaying maze! Tax planning helps you navigate that maze and find ways to keep more of your money in your pocket.
The government allows this because it wants you to invest in these schemes and through the process of tax saving wants to spread awareness regarding them.
Think of it this way: tax planning is playing by the rules of the government regarding income and investing in schemes to get tax benefits, while tax evasion is like cheating on the government by hiding your actual income to save yourself from paying taxes – it’s not cool and can get you in trouble.
By learning about tax breaks and smart investments, you can be a responsible citizen and keep more money for your dreams, like that amazing vacation or a house. Why not give tax planning a try? It might surprise you how much you can save!
Please share your thoughts on this post by leaving a reply in the comments section.
Also, check out our relevant post on : “PPF, NPS, ELSS, and ULIPs: Where to invest for Tax Benefits?“
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