Tricks to reduce tax

Tricks to reduce tax burden

With tax filing season going on, now is the time to start thinking about how you can save money on your taxes.

Many clever strategies exist to reduce taxes and reap the most significant savings. However, tax planning is typically a let’s do it later for most people. A better strategy is to start investing in the first quarter of the fiscal year to give one time to make wise plans and to take advantage of the best returns from various tax-saving investments.

Taking safety, returns, and liquidity into account is crucial when choosing the best tax-saving investing programs. Additionally, it’s critical to be thoroughly aware of the tax implications of the returns. The potential to accumulate wealth over the long term is limited if investment returns are taxed.

Here are some of the tax saving schemes for you to look at:

Tricks to reduce tax
Though numerous tax-saving investment plans are on the market, people often have trouble determining which plan suits them best. We developed some of the top tax-saving investments under Section 80C of the Income Tax Act, 1961 to help you choose an ideal investment plan by considering your risk tolerance and preferences. Here are some of the tax Saving Schemes for you to look at:

ELSS (Equity-Linked Saving Scheme) Mutual Fund

Tax-saving is an essential characteristic of ELSS funds. An equity-linked saving scheme, or ELSS, is an open-ended mutual fund that invests 80% of its assets in equity. An ELSS fund gives you the chance of a high return due to significant equity investment. Additionally, ELSS enables a tax deduction of 1.5 lakh rupees. Depending on your income bracket, this can save you up to 46,800 rupees in taxes.

National Pension Scheme (NPS)

NPS is a government-sponsored pension plan. It’s designed to get you to save regularly during your earning years. If you’re self-employed, you can deduct up to 20 percent of your gross income for NPS contributions. Before you withdraw it, the money continues to grow tax-free.
The total of all deductions under 80C, 80CCD, and 80CCD(1) cannot exceed 150,000 rupees. No deduction will be permitted for the sum for which removal has previously been requested and approved under section 80CCD (1). Additionally, under section 80CCD(1B) of the Income Tax Act, salaried and self-employed taxpayers may deduct investments in NPS up to 50,000. Further, under 80CCD(2), employer contributions to PF and NPS are deductible from his gross income up to 10% of his salary (Basic Salary + DA). Employer contributions to NPS have a planned maximum of up to 7.5 lakh rupees, according to Union Budget 2020.

Public Provident Fund (PPF)

A Public Provident Fund (PPF) is India’s government-backed long-term investment and retirement savings account. It’s classified as Exempt-Exempt-Exempt, which means that deposit interest earned is tax exempt from taxation when withdrawn. This makes the PPF a wise investment for developing a saving habit, gaining a respectable interest rate, securing against dangers and market volatility, and enjoying several tax advantages.

Sukanya Samriddhi Yojana

The Sukanya Samriddhi Yojana is a government-supported and promoted small savings program. It allows parents to open a savings account in a bank or post office in the name of their female kid. The interest rates are announced every three months and operate similarly to other postal schemes. This plan aims to motivate parents to start saving early for their girls’ education. The interest rates charged under this plan have routinely exceeded 8%.

National Savings Certificate

The National Savings Certificate is another fixed-income investment that works like a savings bond. The NSC has a defined maturity duration of either five or ten years. NSC investments up to a maximum of Rs 1.5 lakh can be deducted from income for calculating taxes according to Section 80C of the Income Tax Act, which also applies to NSCs.

Senior Citizen Saving Scheme

Senior citizens receive interest payments monthly through the Senior Citizens Savings Scheme. Indian citizens at least 60 years old may apply for this program. You may deduct your donations to SCSS under Section 80C of the Income Tax Act. If the annual interest reaches Rs. 50,000, your bank or post office will deduct tax at 10% under section 194A. However, you can earn interest without TDS deduction if you provide form 15H and have income below the minimum threshold limit.

Bank Fixed Deposit Scheme

Fixed deposits that banks offer have a five-year term, unlike most other investment options with a one-year or shorter period. They give tax-free income and investment safety because the money is locked in for five years and cannot be withdrawn before then. The bank determines an FD scheme’s interest rate, which can change every three months or at the end of the fiscal year.

Insurance

Life insurance offers financial stability to the policyholder’s beneficiary after their death in return for a premium. Additionally, it assists in supporting the family and dependents. Under Section 80C of the Income Tax Act, you may deduct up to Rs 1.5 lakh per year from your taxable income from the premiums you paid for a life insurance policy. Also, the beneficiary is exempt from paying taxes on the sum received at maturity or at inevitability (when no premiums are paid).

Income Tax Refund

Now that we’ve discussed tax-saving opportunities, let’s discuss your income tax refund.

What is Income Tax Refund?

If you have been deducting TDS from your income or paying advance taxes, you may be eligible for an income tax refund. You will receive reimbursement when you spend more income tax in the given financial year (FY) than your final assessed liability. This is known as an income tax refund.
Under Section 237 of the Income Tax Act of 1961, you will receive a refund for extra taxes paid. You can estimate your potential tax refund when you submit an income tax return or ITR. They approve your rebate after the department carefully reviews your proposed return.
No interest is charged on the extra tax that was paid. As a result, you can invest the money instead of spending too much tax. You should anticipate your potential tax liability for the year and make any necessary adjustments to your advance tax payments.

Conclusion –

Running a business can be expensive. Taxes are one of the most significant expenses, but luckily there are lots of different tax saving schemes you can use to reduce your burden.

The best thing to do is research the options available and choose the one that best suits you.