Have you found yourself running around in February/March desperately trying to make ANY tax saving investment to save your salary form the brutal tax deductions?
PRO TIP! Start planning your tax saving investments from May itself to avoid hasty last-minute decisions and also gain from your investments throughout the year.
Remember the following when making a tax saving investment:
The investments mentioned below are for tax deductions. Put simply, they reduce the taxable income.
For example – If your taxable income is ₹9 Lakhs and you make an investment of ₹1 Lakh, you won’t save ₹1 Lakh on tax, instead, your taxable income will be reduced to ₹8 Lakhs. You can save 10% to 30% of your income, depending upon your tax bracket.
- Under section 80C you get a limit of INR 1,50,000 each year for tax saving investments. These investments have to be made in the same financial year for which tax is being saved.
- A tax saving investment made in a particular year saves tax only for that year.
- The investment does not have to be made specifically from the income that needs to be saved. There are no restrictions on the source of investment – it only needs to be made for the current financial year.
- There are two parts to each tax saving investment.
- The actual amount you invest which results in a reduction of taxable income.
- The gains you get from the tax saving investment – Contrary to popular belief, the gains from tax saving investments are not tax-free in most cases.
- While there are many deductions available the most common ones is Section 80C
The entire CUMULATIVE limit for the below-mentioned investment products is ₹1,50,000 a year. All of the below investments in totality can’t be more than ₹1.5 Lakhs – for example, you can’t investment ₹1.5 Lakh in PPF and ₹1.5 Lakh in ELSS and claim deduction for both investments. Be careful not to overshoot this mark because you will not save any tax and the investment will be pointless. You can further reduce your taxable income if you have paid for Medical Insurance or have incurred specific medical expenditures.
Popular Tax Saving Options
- Employers PF contribution
- Life Insurance Premium Payment
- The principal payment of Home loan
- 5 year Tax Saving Fixed Deposit
We believe ELSS Equity Mutual funds are the ideal way to save tax as they require a short lock-in period (3 years) and offer highest long-term returns.
Check out Moneyjar’s Tax Saving Jar.