Tax saving is one of the most crucial parts of financial planning. There is another thing apart from the fact that people view taxes as a major financial burden. The absence of sound tax planning is another factor that may lead to additional stress. Many taxpayers need help fitting the pieces of tax savings into their financial puzzle.
Therefore, now most people go to a tax consultant company to strategically plan their tax reduction journey. It is important because a smart tax-planning strategy can help individuals meet their financial goals. Additionally, a sound strategy will result in tax savings. If you find yourself in a similar situation, you shouldn’t worry. Here, we have given a comprehensive guide to tax-saving strategies to protect your income tax.
Strategies On Tax Reduction To Safeguard Your Income Tax
It is very hard to avoid taxes, but a few strategies will help you reduce them. But, still, a taxpayer must know how to safeguard their income taxes. Therefore, people often go to a tax consultancy organization that offers tax planning services to help an individual. However, we have mentioned some effective 9 ways to safeguard your income from huge taxes below.
- Fixed Deposit
When you invest in the tax-saver fixed deposit, which is mainly tax-exempt under section 80 C, you can save tax. You can invest this to claim a maximum deduction of Rs.1.5 Lakh. The lock-in period of such FDs is 5 years, and earned interest will be taxable. The interest rate generally ranges from 5.5% to 7.75%.
- Public Provident Fund
PPFs, also known as public provident funds, are another well-liked investment that can reduce your tax burden. For an investment product with long-term savings, you have to open a PPF account at the post office, to begin with. You will receive a guaranteed interest rate when you contribute to the PPF account. An individual can claim a deduction on these deposits under the 80 C section up to Rs.1.5 lakh in a financial year.
- Senior Citizen Saving Scheme
Senior Citizen Saving Scheme is another strategic plan that many tax planning service organizations recommend to protect income tax. It is mainly a government-sponsored savings vehicle for people above 60 years. This scheme aims to provide those aged persons with a secure and steady income during their post-retirement phase. In addition to that, it offers a relatively substantial income.
The primary amount invested in the Senior Citizen Saving Scheme is eligible for a tax reduction under section 80C. However, this exemption is only applicable under the existing tax regime. The received interest is subject to tax according to the applicable slab of that individual taxpayer.
- Claim Tax Credits
There are multiple IRS tax credits available that your IRS tax representation knows about. Earned Income Tax Credit is a popular IRS tax credit that minimizes the amount of tax. If you are a low-income taxpayer, then you will be able to claim credits. The credit can rise depending on the number of children you have. Saver’s credit for lower- and moderate-income individuals seeking retirement savings will be found.
- Life Insurance
Life Insurance is another great investment plan that can help you to save your Income tax. It plays a vital role in your overall financial portfolio to offer additional security in case of an eventuality.
A tax consultant company always recommends taking life insurance at the earliest for the family’s security. Whether market-linked or traditional, life insurance always offers tax advantages to every individual policyholder. Multiple life insurance plans exist, including Endowment Plans, Term Plans, Money Back Plans, and Unit-linked Plans.
- Tax Saving Mutual Funds
Equity-linked saving Schemes fall into the tax-saving mutual fund category and qualify for tax benefits. Tax-saving mutual funds are ideal for investors with high to medium-risk takers. The lock-in period of this particular fund is three years. An individual can claim credits up to Rs. 15 lakh under section 80C of the Income Tax Act.
- Pension Plans
Pension form is mainly another form of Life Insurance. Though, the purpose of these plans is different from the other insurance plans, such as endowment plans and term plans. The protection plans mainly offer security to the family members after the death of an individual in the family.
But, the pension plans serve the individual the benefits if the person survives. One-third of the accumulated pension plans are mainly tax-free; the rest is your income, and they will tax at a marginal tax rate. The whole amount is tax-free after the beneficiary’s death.
- National Savings Certificate
National Savings Certificate is another savings bond scheme that helps an individual to protect income tax. You can purchase an NSC certificate if you already have a savings account in any post office or bank. If you have internet banking access, you can get it through e-mode. Investors can purchase NSC for themselves, with another adult, or on behalf of any minor.
- Health Insurance
Mediclaim or Health Insurance is a popular insurance plan that covers the cost of hospitalization or accident. Depending on the sum assured, the medical will cover the cost of pre and post-hospitalization. Health Insurance generally provides tax benefits under section 80C. You can receive minimum insurance up to Rs.15000 for mid-aged people and Rs. 20000 for aged people. If any policyholder pays Rs.15000 and Rs. 20000 for their parents, they can claim Rs.35000 tax benefits.
Conclusion
Paying for everything that has legal ownership of the tax authority is crucial. But, still, when you have ways or effective strategies to protect the taxes of your income, you should know it. Apart from the points above, you will find several other ways to safeguard your income tax. But it is also true that solid tax planning to meet your financial goals is very important. If you are a taxpayer and find it hard to plan properly, this guide may be helpful for you.
