Tax-saving options that you can consider in the financial year 2023
The article focuses on offering you a detailed understanding of the concept of tax exemptions and what plans you can choose to enjoy better tax exemptions, especially with the new tax regime. In addition, a quick read will help you get an idea of the returns you get with each investment, which makes it easier for you to pick the right scheme for your salary and financial plans.
In most Indian households, the concept of savings seems to be innate. While saving by budgeting your expenses can be easy to handle, the real deal starts when you have to understand the concept of income tax. When you start earning, you soon realise the relationship between income tax and salary. It is crucial that you get a good hold of savings and investing to minimise your tax burdens. Now that you are planning to shell out your money for taxes, a few strategies can help you save a decent amount of money.
With the introduction of the new tax regime, there have been changes that can work in your favour when it comes to tax-saving options. So, if you are a salaried individual, by choosing the right investment tool for yourself, you can efficiently save on taxes.
Tax-saving schemes
There are several schemes that you can choose to invest in for serving both the purposes of savings on tax and investment. Take a look at the options mentioned below:
- EPF (Employees Provident Fund):
One of the largest Social Security Organisations in the world, the EPF or the Employee Provident Fund is the most used strategy both for savings and tax exemptions. The tax saving method was a result of the government’s initiative – the Employees’ Provident Fund and Miscellaneous Act of 1952. Under the control of the central board of trustees, EPF requires you to contribute 12% of your salary to a specified fund, and your employer contributes the same.
Under Section 80C Income Tax Act 1961, the employee’s contribution of up to INR 1.5 lakhs is eligible for tax exemption. Also, the earning that are generated are tax-exempted. However, if you withdraw your EPF before the period of 5 years, you would be liable for taxation, where a TDS would be applicable if the withdrawal amount exceeds INR 50,000.
- PPF (Public Provident Fund):
PPF, or Public Provident Fund, is an amazing savings scheme that also allows you to save a handsome amount on tax. When you choose the scheme, a certain stipulated amount is deducted every month, and interest is compounded accordingly. The Central Government backs the plan, and therefore, you get assured returns. Currently, the PPF offers a 7.1% interest rate and comes with a minimum tenure of 15 years. You have the option of increasing the tenure in blocks of 5 years.
You can get up to INR 1.5 lakh exemption using this scheme under Section 80C of the ITA on the investments that you make in a financial year. Apart from the invested amount, the interest that is earned, as well as the maturity amount, is also tax-free.
- Insurance investments:
When you start receiving a monthly salary, the first investment that you should think of is to start planning for a solid health and life insurance plan. The health and life insurance sectors have made it simpler for you to choose by introducing a wide range of schemes to suit your life and general insurance needs.
As per Income Tax Act’s Section 80C, you can claim tax benefits on the premiums that you pay. The maturity benefits are tax-free under Section 10(10D).
While you get security in a medical emergency with medical insurance, these plans also come with tax exemptions. You can get up to INR 1 lakh of tax exemption under Section 80D, depending on your age and the family members that you have bought the health/ medical insurance plan for. You can always pick plans that cover medical insurance for your children, spouse, and parents.
- Tax Saving FDs:
Tax Saving fixed deposits are highly recommended options for both savings and income tax exemptions. When you open a tax-saving FD, the FD tenure needs to be 5 years or more. Under Section 80C of the ITA, 1961, the maturity period for the deposit is 5 years. You can avail of up to INR 1.5 lakhs. However, if you earn an interest that is over INR 40,000 in a financial year, then the FD attracts a TDS of 10%. For senior citizens, the limit is INR 50,000.
- NPS (National Pension Scheme):
NPS, or National Pension Scheme, is another Central Government initiative that is a voluntary scheme for employees in private, public and even unorganised sectors, but not the armed forces. The scheme requires you to deposit a certain stipulated amount of your salary every month in the scheme till the time you turn 60. The scheme matures on your retirement or at the age of 60, and you are then eligible for withdrawal of up to 60% of the corpus built. The remaining 40% has to be mandatorily kept for your annuity. The scheme offers an interest rate between 9% – 12%.
The entire withdrawn corpus is tax exempted. In addition, you can enjoy up to INR 1,50,000 of tax exemption on the contributions that you make as per Section 80C. An extra self-contribution that you make can also be claimed as per Section 80CCD(1B), raising the total tax benefits to INR 2 lakhs. 10% of the salary is the highest exemption that you can claim as per Section 80CCD(1). However, if you are a self-employed taxpayer, the highest limit is 20% of your total income.
- ELSS (Equity Linked Savings Scheme):
Equity Linked Savings Scheme is part of an open-ended mutual fund that is related to equities and equity products. The scheme is also called a tax saving mutual fund as it is a one-of-a-kind mutual fund that is eligible for tax exemptions under sec 80C of the IT Act, 1961. The major benefit of ELSS is that it provides you with a three-year lock-in period, and in addition, you get up to INR 1,50,000 tax exemptions. However, if your long-term capital gains through ELSS are above INR 1,00,000, then you have to pay a 10% tax on the returns.
Which is the best tax-saving option?
Tax saving is crucial if you wish to save a larger amount of money and make the most of your investment in the long run. However, choosing the right scheme forward can often be tedious and daunting. The easiest way to pick the best scheme is to compare the interest and exemption that you get under different plans and schemes. You can refer to the following table for a quick idea:
| Tax-Saving Options | Interest | Exemption |
| EPF | 8.1% | Up to INR 1,50,000 |
| PPF | 7.1% | Up to INR 1,50,000 |
| Tax saving FDs | Between 7%-9% | Up to INR 1,50,000 |
| NPS | Between 9%-12% | Up to INR 1,50,000 |
| ELSS | Between 8%-10% | Up to INR 1,50,000 |
The most useful tax-saving option may differ from one individual to another and their investment capacity. Nevertheless, it is suggested to pick a tax-saving option that gives you better security. If you are equally willing to make investments along with serving tax-saving purposes, choose the plans that offer high return rates as well. You first need to chalk out your requirements in the long term and then pick a plan that best suits your needs.
Conclusion
There is a plethora of options available for you to invest and save your salary while also getting exemptions under the new tax regime. All you have to do is first find which tax slab you belong to and up to what extent you are willing to invest your money apart from your ongoing expenses. In such a scenario, medical insurance can be one ideal choice, along with others. With a solid tax-saving option, it becomes easier to create a better financial base for all your plans.
Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.
