Are you a salaried employee looking to optimise your tax savings? Undoubtedly, tax season can be quite busy for everyone. However, with proper planning and awareness of available opportunities, you can minimise your tax burden and maximise your take-home pay. In this blog, let us explore various tax-saving opportunities specifically tailored for salaried individuals to save on taxes. Also, through this blog, we will learn more about these tax-saving options and their features and benefits.
Tax Saving Opportunities Available for Salaried People
There are several tax-saving opportunities that are ideal for all working professionals:
Tax-saving FDs have long been a staple investment choice in India. They offer similar benefits to standard FDs but with a mandatory 5-year lock-in period. While the interest earned during this period is taxable, investments in a tax-saving FD are eligible for tax deductions up to Rs. 1.5 Lakhs under Section 80C of the Income Tax Act of 1961.
The interest rate can vary from one bank to another, and the interest earned is taxable. Generally, Tax-Saving FDs provide higher interest rates compared to regular FDs, ensuring assured returns over the investment duration.
You can begin the investment process with just INR 10,000. Investing with a small amount ensures accessibility to a diverse range of investors.
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Public Provident Fund (PPF)
The Public Provident Fund (PPF) is essential to a salaried individual’s financial plan. It’s a government-backed savings scheme with a minimum investment requirement of just Rs. 500 and a maximum limit of Rs. 1.5 lakh.
With a minimum lock-in period of 15 years, PPF is one of the top choices for tax-saving and retirement planning. It offers tax deductions under Section 80C.
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Equity Linked Savings Scheme (ELSS)
ELSS Funds stands out as a market-linked tax-saving option eligible under Section 80C of the Income Tax Act. It’s the sole category in mutual funds that offers tax benefits.
Starting with a minimum of Rs. 500 through a regular Systematic Investment Plan, ELSS focuses on equities, potentially yielding high returns of around 15% per annum with a long-term investment horizon.
Despite a mandatory 3-year lock-in period, contributions to ELSS remain tax-deductible under Section 80C, making it an attractive choice for tax-saving purposes.
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National Pension System (NPS)
The National Pension System (NPS) is overseen by the central government and tailored for individuals with a conservative risk appetite planning for retirement. It ensures both safety and tax-saving advantages for salaried individuals.
Contributions to NPS qualify for tax benefits under Section 80C of the IT Act, with an additional deduction of up to Rs. 50,000 under Section 80CCD(1b). Starting with a modest investment of Rs. 500 per month, NPS offers an interest rate ranging from 3% to 10% per annum.
Interesting Related Article: “How Taxes Work if you have a Self-Directed IRA“
