How to save income tax

So you’re considering how to save tax from your income. Maybe you’ve heard about the tax breaks for education, mortgage interest and childcare. Maybe you’ve decided to review your personal tax return for the last few years to find out how much you can save. You might be thinking of ways to avoid paying tax altogether or reducing the amount you end up paying at the end of the year. Investing money in tax-saving instruments under Section 80C helps you save tax.

The section 80C allows you to get deductions from your total taxable income in one financial year. To get the benefits of section 80C you can invest in the following:

Equity Linked Savings Scheme

These schemes have a 3 year in period. It is also the only type of mutual fund by investing in which you can get a tax deduction under the rules of Section80 C. If you invest in equity linked savings scheme then your money will primarily be put in equity markets thereby ensuring you get extremely high returns. There are two different ways in which you can invest. One is by investing a lump sum amount and the other is Systematic Investment Plan.

Term Life Insurance premium

Term Life insurance is a type of life insurance that pays out on a specific term, usually 10 years. Term life premiums are generally less than cash value life insurance premiums because they have lower cash surrender values and shorter payment periods. Term life premiums are also typically more expensive than cash value policies because the premium is paid for a fixed period and does not increase as your health or age changes. You can measure the value of premiums for different rates using a term loan calculator.

A term policy may be the best choice for someone who doesn’t plan to get another term policy later. If you’re interested in buying term coverage, you should compare term and cash value policies side by side to see which one meets your needs best. If someone takes out a term life insurance then they are eligible for tax exemption under section 80C

National Pension System

This is a retirement benefit plan and it is governed by the pension regulatory fund authority of India. When you invest in NPS your money will be put in equity and debt. When you attain 60 years of age, you can take out 60% of the total amount obtained after maturing. The remaining 40% can be used to buy annuity so that you may receive pension.

Public Provident Fund

This is a long term investment plan which helps you get substantial tax benefits. The rate of interest on Provident Funds varies based on government regultions however it stays around 7.9%. The amount is compounded annualy and the lock in period is around 15 years. You can start a ppf account with as little an amount as Rs. 100.

Home loan repayment

In case you have taken a home loan, then under section 80Cyou can get tax deductions on some part of EMI(Equated Monthly Installment) that is used for paying off the principal amount.  However, you can’t get exemptions for the amount that is used to pay off the interest. To make an estimation of how much money you will be saving for different values of EMI you can use an emi calculator, loan amount needs to be fed into these calculators and you can start analysing. Check out this page for more info.