Tax-Saving Options for Salaried Individuals in India- Part 1

Tax planning is essential for those who are working on salary in India since it gives you a really significant chance to reduce the payable income tax and growth in increasing your wealth. Indian Government provides ample scope and avenue to reduce one's taxable income through some well-devised schemes or deduction propositions. These include insurance towards health or house rent, which can be availed as deductions, in addition to savings instruments. Effective tax planning not only reduces one's income tax burden but will also allow achieving long-term goals pertaining to finances.

Section 80C is among the most powerful tax-saving tools. Under this act, one can claim deductions up to ₹1.5 lakhs from their taxable income by investing in specific instruments. It encompasses a gamut of tax-saving options that would not only help in saving on your taxes but also work towards your long-term financial goals.

Another most common tax-saving option under Sec 80C would have to be the EPF or the Employee Provident Fund. Every salaried employee in the country is engaged with the EPF, as this is a retirement savings fund that is deemed mandatory for those gaining wages and earnings. The contribution by an employee and employer is also allowable for deduction. The amount draws zero-interest tax upon withdrawal, so that makes it one of the most viable long-term savings instruments.

The next most sought-after avenue is the Public Provident Fund, or PPF in short, which is considered one of the safest investment avenues in India. The interest on PPF is not liable for tax, and subscription to PPF is deductible under Section 80C. Though PPF carries a lock-in period of 15 years, it ensures guaranteed returns and is an excellent tool for creating wealth.

Life insurance premiums, whether term insurance, endowment plans, or ULIPs, also fall under the ambit of Section 80C. Other than securing your family against any unfortunate eventuality, buying life insurance helps you save on taxes. The premium paid is allowed as a deduction, even if the policy is taken for your spouse or children.

Another avenue for savings that is backed by the government and is eligible for deduction under Section 80C is the National Savings Certificates. The NSCs have a fixed return and reinvested interest with a 5-year lock-in period, which is also eligible for a tax deduction.

Tax-saving fixed deposits offered by banks also come under Section 80C. These deposits have a 5-year lock-in period and the principal amount so invested is allowed as a deduction under the Income-tax Act. Though the interest from these deposits is taxable, the principal investment offsets the taxable income to that extent, and thus these deposits are a good avenue for conservative investors.

The equity-linked saving schemes are the reasonable option for those ambitious in terms of returns. ELSS are invested in the market and have a necessary 3-year lock-in period. While pretty volatile, they tend to yield higher returns than the mere savings devices. The investments toward ELSS are exempt under Section 80C, and the relatively 'short' lock-in would make them an attractive tax saving device.

Apart from Section 80C, the most popular section for savings, Section 80D of the Income Tax Act allows a deduction for health insurance premiums. You are allowed to deduct ₹ 25,000 each year for payment made toward health insurance premiums on yourself, your spouse, and dependent children. Expenses related to preventive health checkups also allow deduction up to ₹ 5,000.

For example, if you are paying the health insurance premium of your senior citizen parents, another ₹50,000 may be claimed as additional deduction. If you also happen to be a senior citizen, along with your parents, the total will reach ₹1 lakh and would thus become a pretty good-size deduction for assessees.

Conclusion

By being aware of, and utilizing some very good options that save on income taxes, it is very much possible for salaried people in India to have low liabilities while building their wealth over the long term. Utilize sections like 80C and 80D of the Income Tax Act-1961 judiciously to contribute towards your current financial needs while building wealth for your future. In the next chapter, we’ll dive into Part 2, exploring a range of additional tax planning strategies.