For someone who makes money, tax preparation is an essential component of responsible money management. Salaried people typically consider investing tools and strategies to reduce the amount of income taxes they pay twice a year, at the beginning of the financial year and in the final quarter of the fiscal year. An investment declaration is required of employees by their employers at the start of each new fiscal year, and they must furnish documentation of their investments made in the final quarter of the previous fiscal year.
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According to tax experts, tax preparation shouldn’t be done haphazardly or only at the start or end of the year. Making poor investment choices as a result of last-minute tax planning could be your responsibility. In addition to helping you comply with tax requirements under income tax laws, a carefully considered investment plan with tax savings in mind can help you save your hard-earned money.
There are plenty of options on the market if you’re looking to invest in ways to save taxes. Taxpayers are big fans of tax-saving options like Sukanya Samriddhi Yojana, ULIP, PPF, NPS, and ELSS.
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National Pension System- Due to its significantly higher returns when compared to other investment schemes, NPS is a very popular choice for investors. It provides subscribers with a selection of pension funds as well as a variety of investment options. Because NPS enables a taxpayer to receive tax benefits under three distinct income tax law sections, it provides additional tax advantages. Section 80CCD (1) permits the claimant to deduct contributions up to Rs 1.5 lakh. Section 80CCD(1B) provides for an extra deduction of up to Rs 50,000. In conclusion, Section 80CCD(2) provides employees with extra tax benefits on investments made through their employer.
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Public Provident Fund –PPF is an investment tool that allows you to save money on annual taxes while building a retirement corpus. PPF currently provides an annual interest rate of 7.1 percent. It is one of the most popular long-term tax-saving investments on the market today, with the ability to deduct up to Rs 1.5 lakh in taxes per year under Section 80C. During a financial year, a PPF subscriber has the choice to pay the entire amount in one lump sum or over several installments. Three elements make up this scheme: safety, returns, and tax savings.
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Unit Linked Insurance Plan- Your family can benefit from two things when you have a whole life insurance policy (ULIP): growth of your money to support long-term goals and a life insurance policy that safeguards your finances in the event of an emergency. ULIP is considered to be more flexible than NPS since it does not have a lock-in period until retirement. There is also permission for periodic withdrawals. One disadvantage of NPS is that policyholders are locked into a term-long agreement with the insurance company; on the other hand, investors can choose the new pension fund manager. Under Income Tax Laws, Section 80C, premiums paid towards a Levelized Benefit Plan (ULIP) are tax deductible up to Rs 1.5 lakh.
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Equity-linked savings scheme Under Section 80C of the Income Tax Act, 1961, a taxpayer may deduct up to Rs 1.5 lakh annually from an ELSS mutual fund, also referred to as a tax-saving mutual fund. ELSS offers a three-year lock-in period that can lower taxes and boost returns. It also gives the investor the option of investing in lump sums or through regular installment payments. Long-term capital gains tax is 10% of the total gain when units are redeemed from an ELSS; however, if the gain is less than Rs 1 lakh, no tax is payable.
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Sukanya Samriddhi Yojana- For many years, the Sukanya Samriddhi Yojana (SSY) offered a higher interest rate than other savings plans. SYY was introduced to provide financial stability for the girl child, and it currently offers an annual interest rate of 8.2 percent. Similar to PPF, there is an annual investment cap of Rs 1.5 lakh and tax-free interest earned. An SSY account has a 15-year payment period and a minimum 21-year maturity date. On premiums paid towards SSY, tax deductions of up to Rs 1.5 lakh are permitted annually.
