A tax saving scheme is a financial product designed to help taxpayers lessen the burden of tax payments. Individuals with a high tax burden usually use tax-saving schemes.
Tax-saving schemes come in different forms, such as pension plans, insurance policies, and investments. They benefit individuals because they can reduce their tax liability and give them more money to spend on other things.
Many people find it difficult to save money consistently throughout the year, but with tax-saving schemes, they can be sure they will make the most of their savings each year.
Tax Saving Schemes are the best way to invest and claim tax benefits. Tax benefits in the form of tax deductions are available u/s 80C of the Income Tax Act, 1961. Section 80C allows for deductions up to Rs.1.5 lakhs per annum. Some additional tax deductions could be claimed up to Rs 50,000 under section 80CCD.
Different Types of Tax Saving Schemes
- Post Office Tax Saving Schemes.
- Bank FDs Tax Saving Schemes.
- Other Tax Saving Schemes.
Post Office Tax Saving Schemes
Investment schemes offered by the Post Office of India provide tax deduction benefits under Section 80C. For example, if you invest in any post office schemes mentioned below, you may claim a tax deduction of up to Rs 1.5 lakhs.
- Time deposit account.
- Recurring deposit account for five years.
- Public Provident Fund scheme.
- Senior Citizen Savings Scheme.
- National Savings Certificate (VIII issue).
Bank Tax Saving Scheme
Tax-saving fixed deposits are available from scheduled banks.
The tax benefit is available on those fixed deposits that are of five years period. However, these five years are locked, and an investor could not encash the fixed deposit before the five years.
Tax deduction could be claimed for bank fixed deposit subject to the maximum limit of Rs 1.5 Lakhs under section 80C.
Other Tax Saving Schemes
In addition to bank and post office schemes, other schemes also provide tax benefits to individuals. These schemes are:-
- Life Insurance Policy.
- Infrastructure Bond.
- Tax Saving Mutual Fund.
- Provident Fund Scheme.
- Mutual Funds Pension Plan.
- National Pension Plan.
Benefits of Tax Saving Schemes
Some people are not aware of the advantages of tax-saving schemes. The most common misconception is that tax-saving schemes are only for the wealthy. However, people from different income groups can enjoy benefits under Tax Saving Schemes.
The most important benefit is that an individual can save money and use it to achieve financial goals.
How to Choose the Best Savings Options for You -A Checklist of Questions to Ask When Evaluating Your Options
The best savings options for you are not always the same as the best options for other people. Therefore, you should evaluate your circumstances to determine what is best for you.
This checklist of questions can help you determine the best savings option.
- How much money do I need to save?
- What are my goals?
- What’s my risk tolerance?
- What are my fees and interest rates?
- What’s my time horizon?
- Do I want a mix of investments or just one type of investment?
- Am I comfortable investing in stocks, bonds, or mutual funds?
Conclusion: Start Reducing Your Tax Burden Today
Taxes are inevitable. As long as you live within the boundaries of a civilized country, you will have to pay some taxes. A low tax burden typically refers to when the amount of taxes you pay could be lowered by some percentage, say 10%. In other words, your effective rate is reduced.
