Investment in tax-deferred vehicles
Section 80C of the Income-tax Act of 1961 allows for tax deductions on certain amounts invested in qualified savings and retirement plans and other government-approved savings vehicles to encourage residents to save. For tax purposes, some of the most common types of designated investment instruments are:
- Public Provident Fund (PPF) Employees’ Provident Fund (EPF)
- Bank deposits that are guaranteed to remain unchanged (tenure of 5 years or more)
- Insurance policy for the living
- Equity-Linked Security Investments
Various retirement programs, including the National Pension System (NPS)
A wise investment in one of these products may help you save money on taxes (up to a ceiling of Rs 1.5 lakh per fiscal year) and advance your financial objectives simultaneously. However, one may save money on taxes by reverting to the previous system. To take advantage of the new tax system’s more lenient rates, taxpayers will have to give up some tax breaks that were previously available under the old regime, such as the section 80C benefit. Those who have chosen the new tax system will not be able to save money on taxes by investing in the aforementioned securities.
Choosing the Right Parts of the Employer’s Salary Structure
If you’re a salaried worker, you may assess your company’s wage structure and choose the parts of your income that will provide you with the most tax advantages. House Rent Allowance (HRA) for renters, reimbursements for phone and internet usage, a stipend for college, food stamps, and so on are just a few examples. Consequently, one’s taxable income may be reduced through the use of allowable exemptions and deductions (as per the specified conditions). One can even hire a tax relief professional for saving from taxes.
The Third Reason: Boosting Contributions to Retirement Funds
Salary-earners who have not yet maxed out their EPF contributions might consider doing so by contributing to a “Voluntary Provident Fund” instead. You may deduct this extra payment from your taxable income under certain circumstances. In addition, the employer’s NPS contribution (capped at 10% of salary) will result in a further reduction in the employee’s take-home pay.
If an employee’s contributions to their EPF and VPF in a given fiscal year total more than Rs 2.5 lakh, however, they would be subject to income tax on the interest they earn.
Financial incentives for homeownership 4 Tax breaks for mortgage interest
If you borrow money from a financial institution like a bank or NBFC or a housing finance business to buy or build a home, you may be eligible to deduct some or all of the interest you pay and some or all of the principal you pay from your taxable income, depending on the circumstances. The tax benefits, however, are only available if the previous tax system is reinstated. Remember that the Rs 1.5 million limits on Section 80C deductions apply even to the principal repayment amount.
