When it comes to saving on taxes, it can be difficult to know where to start.
With so many different options available, it can be overwhelming to figure out which tax-saving methods will be the most effective for your particular situation.
If you earn a salary above 10 lac in India, it’s essential to be strategic in your tax planning. With the right approach, you can save a significant amount of money on your yearly taxes.
One of the most popular tax-saving methods is investing in tax-saving investments. These are typically long-term investments that offer tax benefits in exchange for a commitment to hold the investment for a certain period of time.
Some popular options include Public Provident Fund (PPF), Equity-Linked Saving Scheme (ELSS), Insurance and National Savings Certificate (NSC).
These investments offer a variety of benefits, including tax-free returns and the ability to claim deductions in your income tax return.
This blog post is an in-depth explanation of the different tax-saving methods for people in India with a salary of 10 lac or above.
Investments in securities are subject to market risk. The value and return on investment may vary because of changes in interest rates, foreign exchange rates, or any other reason.
Tax saving methods for people in India above 10 Lac
1. Public Provident Fund (or PPF)
PPF is a popular investment option for tax saving as it offers a dynamic rate of interest and tax-free returns. PPFs also provide a loan facility and a partial withdrawal facility after 7 years of deposit.
Every year, the rate of interest is reviewed by the RBI, which makes them subject to change.
The Public Provident Fund (PPF) scheme is a long-term investment option that provides attractive rates of interest/returns on the amount you invest. All the interest earned under PPF and the returns also aren’t taxable under Income Tax.
You’d have to open a PPF account and the amount deposited during a year is going to be claimed under section 80C deduction.
2. Equity Linked Savings Schemes Mutual Funds (ELSS)
ELSS, on the other hand, is a type of mutual fund that invests only in equities.
These funds offer a higher rate of return compared to other tax-saving investments and come with a lock-in period of 3 years. But then again, these returns again are subject to risks and changing market patterns.
ELSS funds are equity funds that allow you to save tax while you invest for your long-term goals. Your investment in ELSS makes you eligible for a deduction under Section 80C.
This lock-in period ensures that the investor stays invested for a longer period, resulting in capital appreciation.
ELSS also provides benefits that include:
- A lock-in period of 3 years
- A diversified portfolio in order to reduce risks
- Comparatively better returns
3. Medical insurance
Buying a medical health insurance policy is not only ideal for all ages but it’s also a very practical method to get some relaxation on your tax compliances.
To encourage Indian citizens to have a medical insurance policy, the Indian Income Tax Department allows individuals to avail tax deductions towards the premium payment of health insurance policies for themselves and their families under Section 80D of the Income Tax Act.
The different types of deductions on the medical insurance premium under Section 80D of ITA include,
- Health insurance premium paid for self and family: You can avail tax benefits of up to Rs. 25,000 if you’ve bought a health insurance policy for yourself or your family.
- Health insurance premium paid for parents: You’re eligible for a deduction of up to ₹50,000 every year if your parents are age 60 or above.
- Preventive health check-up expenses: With a max limit of ₹25,000 for people lower than 60 years of age and ₹30,000 for senior citizens in India, you can avail of benefits of ₹5000 for preventive health check-ups.
4. Life Insurance
Life insurance not only covers you throughout your life but can even help you save taxes. Life insurance policies are one of the most effective tax-saving tools as it makes the policyholder eligible for tax benefits under the Income Tax Act of 1961.
The tax implications for life insurance however are important to understand before you decide to buy one.
You can get tax benefits on premiums paid in any mode, other than cash towards health insurance policies taken for yourself, your spouse, your dependent children, and/or your parents.
Under Section 80D, you are eligible to receive the following tax benefits:
- Tax benefit on premiums paid up to 25,000/- for yourself, your spouse, or your dependent children (the limit is 50,000/- if the age of the insured is 60 years old or more)
- There is an additional tax benefit on health insurance premiums paid up to 25,000/- for covering parents (the limit is 50,000/- if the age of the insured is 60 years or more).
5. National Savings Certificate (NSC)
NSC is another popular tax-saving investment option that you can leverage to your advantage.
It is a government-backed savings scheme that offers a dynamic rate of interest and tax benefits under Section 80C of the Income Tax Act.
NSC certificates can be purchased from any post office or authorized bank and can be held for a period of 5 or 10 years. The interest earned on NSC is taxable, but the investment made is eligible for tax deductions under Section 80C of the Income Tax Act.
6. Tax-saving FDs
Another very practical option to save your tax includes buying tax-saving FDs.
For example, certain FDs allow you to save a tax deduction of up to ₹1.5 lac under the 5-year tax-saver FDs. SBI and HDFC bank offer really lucrative interest rates that you can avail for yourself.
Most importantly, however, this income tax saving scheme also entangles a fixed rate of interest which is usually between 7-8%.
The interest on the FDs is also taxable as per the investor’s tax bracket.
If you’re someone who earns a salary above 10 lac, it’s crucial to take advantage of FDs too, as they can help you save a significant amount of money.
In India, there are several deductions available that can help you save on taxes, including deductions for housing loan interest, medical expenses, and charitable donations.
If you’re someone who earns a salary above 10 lac, it’s crucial to take advantage of these deductions, as they can help you save a significant amount of money on your taxes each year.
For instance, if you have taken a home loan, the interest paid on the home loan is eligible for tax deductions under Section 24 of the Income Tax Act. This can be claimed as a deduction on your income tax return and can help you save a significant amount of money on your taxes.
The maximum deduction available under 80C is ₹1.5 lac from PPF, ELSS, Life Ins, NSC, and tax-saving FDs. In all these instruments you can contribute only 1.5 L max.
We hope this post helped you explore some of these methods.