Paying taxes is a civic duty, but there are legal ways to reduce your tax liability. Effective tax planning can help you save money while adhering to regulations. Consulting with a mutual fund advisor can also help you make informed decisions.
This article will explore various tax-saving options in India, and mutual fund advisor also help you, ensuring you maximise your savings.
What Is a Tax Liability?
A tax liability is the total money you owe to the government. This can include different types of taxes such as sales, property, local, state, and federal.
The most well-known tax liability is the one owed to the IRS annually. Your tax liability is the amount you owe after subtracting tax credits, deductions, and exemptions from your total income.
What Steps Can I Take to Reduce My Tax Liability?
Your tax liability is your tax bill. You might owe taxes to the IRS if you earn income, but there are ways to reduce this amount. To lower your tax bill, you can save for retirement through employer-sponsored plans and use tax-loss harvesting. Additionally, if you itemise your deductions, charitable donations can help reduce your taxable income.
Want to know more? Let’s have a look at some of the best and legal ways below:
Equity Linked Savings Scheme (ELSS)
Equity Linked Savings Scheme (ELSS) is a popular tax-saving investment option. These mutual funds offer higher returns compared to other tax-saving instruments. ELSS funds are invested in the stock market, making them a high-risk, high-reward option. This investment suits individuals willing to stay invested for the long term.
By investing in ELSS, you can claim deductions under Section 80C of the Income Tax Act. To avail yourself of tax deductions, report your ELSS investments while e-filing your income tax returns.
National Pension Scheme (NPS)
The National Pension Scheme (NPS) is ideal for taxpayers seeking a long-term, low-risk tax-saving option. It provides a combination of safety, returns, and tax benefits, particularly suitable for those with a low-risk appetite.
Investing in NPS makes you eligible for a tax deduction of up to ₹1.5 lakh under Section 80C. Additionally, under Section 80CCD(1B), you can claim an extra deduction of up to ₹50,000 for self contributions. For government employees, employer contributions up to 14% of salary are eligible for deduction under Section 80CCD(2).
Tax-Saving Fixed Deposit (FD)
Tax-saving Fixed Deposits (FDs) are a safe and popular option for lowering tax liability. By investing in tax-saving FDs, individuals can claim up to ₹1.5 lakh deductions under Section 80C. These FDs have a lock-in period of five years and offer guaranteed returns, making them suitable for conservative investors. Additionally, the interest earned on these deposits is taxable as per the applicable tax slab.
Unit-Linked Insurance Plan (ULIP)
Unit-linked insurance Plans (ULIPs) offer the dual benefits of investment and insurance. A portion of the premium paid is used for life cover, while the rest is invested in equity and debt funds. ULIPs provide financial security and help reduce tax liability.
Premiums paid for ULIPs can be claimed as a tax deduction up to ₹1.5 lakh under Section 80C. This makes ULIPs an attractive option for those looking to combine insurance and investment benefits. The flexibility of switching between funds ensures that your investment adapts to changing financial goals and market conditions.
Health Insurance
Health insurance not only provides financial protection against medical expenses but also offers tax benefits. Premiums paid for health insurance can be claimed as a deduction under Section 80D. You can claim up to ₹25,000 for insurance covering yourself and your family.
If you buy health insurance for your parents, you can claim an additional deduction. The limit for parents below 60 years is ₹25,000, and for those above 60 years, it is ₹50,000. This ensures comprehensive health coverage and tax savings. Health insurance plans also cover preventive health check-ups, further enhancing their value.
Senior Citizen Savings Scheme (SCSS)
The Senior Citizen Savings Scheme (SCSS) is tailored for citizens over 60. It is a reliable long-term investment option offering regular income and tax benefits. By investing in SCSS, individuals can claim deductions up to ₹1.5 lakh under Section 80C.
SCSS offers attractive interest rates and is a safe investment avenue for senior citizens. It helps maintain financial stability during retirement years while saving on taxes. The scheme also provides quarterly interest payouts, ensuring a steady income stream for senior investors.
Life Insurance
Life insurance is a common investment option for availing tax deductions. The premium paid for life insurance plans can be claimed as a deduction up to ₹1.5 lakh under Section 80C. Life insurance provides financial security to your family in case of unforeseen events.
Life insurance ensures peace of mind and tax benefits, making it a prudent choice for individuals looking to safeguard their family’s future. Life insurance plans come with various options, such as term insurance, endowment plans, and whole life policies, catering to different financial needs.
Why Seeking Professional Advice is An Adivasable Option?
A personal financial advisor in Bangalore can provide tailored advice to optimise your tax savings. They can help structure your investments and expenses efficiently. Financial advisors stay updated with the latest tax laws and investment options.
Consulting a fund advisor ensures that your financial plans align with your tax-saving goals. They can assist in creating a comprehensive financial plan, including tax-saving investments, insurance, and retirement planning. Regular reviews with your financial advisor keep your tax planning on track.
Conclusion
Effective tax planning is essential for reducing tax liability while staying within legal boundaries. Utilise available deductions, invest in tax-saving instruments and seek professional advice to optimise your tax savings. Planning your salary structure and making charitable donations can further reduce your tax burden. By following these strategies, you can ensure compliance with Indian tax laws and achieve long-term financial stability.
