“Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this.” — Dave Ramsey.
When one starts understanding the value of money, savings, and future goals, they will excel and build an empire for their descendants. Some believe investment and savings are the other names for killing your desires, but wise are those who have the power to balance and act with numbers in life.
One earns to have a smooth sail in life, and investment is one such way that can prepare the ground for future leisure and emergency. Good investments serve as a financial cushion for the long term.
While some dream of owning a big house, cars, providing pricey education to kids, and going on an international vacation, some work and invest timely to achieve those goals.
Apart from all the family expenditures, tax is also a considerable component that depletes a substantial percentage of your investments.
This blog will help you in understanding a basic idea about tax, and
- What is tax saving?
- What are possibly the best ways to save tax in India?
- Why is calculating taxes important?
Some might consider taxes a complicated subject, but don’t worry. After reading this, you will have a clear picture of the need to save tax and how investment is vital in the long run.
What is Tax Saving?
“Make sure you pay your taxes; otherwise, you can get in a lot of trouble.” ~ Richard M. Nixon.
You can consider tax saving as a method to deliberately and lawfully save money for yourself. Since school, we have been taught that paying taxes is a moral obligation, but it does not imply spending your money wisely or adequately for self-use. Our government has established some tax-saving investing instruments for businesses and the working class to support souls with such thinking.
Such provisions are written in our Indian constitution, and they are Sections 80C and 80D of the Income Tax Act of 1961. Two of the most prevalent ways for individuals to save taxes.
Here, if you invest in a suitable plan, you qualify for tax deductions of up to Rs.1.5 lakhs per year under Section 80C. However, if you get health insurance coverage, you can save money under Section 80D. Here, the tax deduction varies depending on whether you pay the premium for yourself, your children, spouse, or dependent parents.
You can earn 60,000 a month and home successfully, but the real success lies when you can divide 60,000 wisely and invest it in life insurance or other investment plans. Balancing finances accordingly is the place where people go astray.
It is where the women of the household excel where they know how to save and invest wisely without going wrong. I believe none has forgotten the demonetization phase where our mothers and wives were caught red-handed with hidden treasures.
How to Calculate tax?
A responsible earner would always be conscious about where their payment goes if they are saving, how the numbers are invested, and possible profits. Not every calculation in life turns out to be the same, but a tax calculation will help you give a rough idea about the taxable income.
It is where the tax calculator plays a significant role. It calculates your entire taxable income as well as your existing tax-saving investments. For instance,
Anjali is earning ₹ 10,00,000 per annum. Her earnings face a standard deduction of 50,000. Apart from regular deductions, she also invested in ELSS to avail of tax benefits under Sec 80C, and here is the result:
|Total Taxable Income|
|Old Tax Regime||New Tax Regime|
|Gross Total Income (A)||9,50,000||10,00,000|
|Investments under ELSS (B)||1,50,000||1,50,000|
|Mediclaim Premium (C)||25,000||25,000|
|Total Taxable Deductions [D= (B+C)]||1,75,000||1,75,000|
|Taxable Income (A-D)||7,75,000||8,25,000|
Some of the benefits of the tax calculator are as follows:
- You may use a calculator to calculate the total amount of money you can save. You can spend the extra on other investment plans to grow assets.
- The tax saving calculator includes a tax computation algorithm showing how much of your income could be used to save for wealth growth.
- The calculator assists you in determining how much you have protected under Section 80C.
What are the Best Tax-Saving Investment Plans in India?
Why undergo a hit and trial method when we provide you with the best tax-saving investment plans you can use in India to have a decisive and profitable long run in life?
And the best tax savings investments are as follow:
Life Insurance: In simple words, life insurance is a life jacket you buy for yourself and your family. For instance, you meet with an untimely death, what about your family? Can you guarantee that relatives would support your family for a long time in terms of finances?
Life insurance acts as a financial saver when they need it the most. Apart from death benefits, they are also beneficial in multiple manners. There are numerous types of life insurance tailored according to the different needs, and they are as follows:
- Term Insurance
- Endowment Policy
- Child Insurance
- Health Insurance
- Money-Back Insurance Policy
- Unit Linked Insurance Plans (ULIP)
- Retirement Insurance Policy
Unit Linked Insurance Plan: When an apt insurance policy and investment plan come together, ULIP becomes a part of your safe investment plan. This unique investment plan allows you to invest in stocks, bonds, or mutual funds. ULIP is a long-term investment programme that provides better returns while also allowing you to deduct your premiums under Section 80C of the Income Tax Act of 1961.
Public Provident Fund (PPF): The government’s public provident fund is a long-term savings strategy plan and is considered as the nation’s one of the most effective tax-efficient programmes for working professionals. Each year’s contributions made to your PPF account are tax-deductible under section 80C of the Income Tax Act of 1961. The maximum limit of tax deduction is Rs 1.5 lakh.
Health Insurance: Have you ever thought about managing medical emergencies if you are ever diagnosed with any chronic illness or suffer complete or partial disability?
Here, health insurance comes in handy that holds the capability to bear your hospital expenses and acts as a tax-saving benefit.
Apart from financial advantage, the insurance plan offers you an income tax benefit under Section 80D of the Income Tax Act of 1961.
The medical insurance premium would be claimed at Rs. 50,000,
- Rs. 25000 for self, spouse, and children
- Rs. 25000 for dependent parents (below 60)
Note: Every year, senior citizens can claim a maximum of Rs 1,00,000 in medical insurance premiums. If they don’t possess health insurance, medical costs up to Rs 50,000 can be deducted under section 80D.
Fixed Deposit: Usually, fixed deposits have a 5-year lock-in period during which the user cannot use or withdraw the money. Moreover, they can be reinvested on a monthly or quarterly basis. The current interest rate on fixed deposits ranges from 2.5% to 5.50%, depending on the banking company.
This type of tax-saving investment is considered a tax-advantaged investment that allows the user to keep their money secure for an extended time.
Note: Section 80C of the Income Tax Act of 1961 allowed for a tax deduction of up to ₹ 1.5 lakhs on fixed deposits.
Equity Linked Savings Scheme: The Equity Linked Savings Scheme is a tax advantage that is available under Section 80C of the Income Tax Act of 1961. It is considered one of the most secure investing choices that provide tax benefits. It follows a minimum lock-in period of three years.
Investment is all about patience to reap a better and bigger profit in the end.
If you invest in equity funds for a more extended period, you will earn more significant returns.
Note: This investment plan allows the user to deposit as little as Rs.500. It is preferable to invest in a type of investment plan over a long period rather than in a big payment.
Those mentioned above were some of the best ways to save taxes and use them fruitfully so that you can enjoy the profits at the right time or use the funding when you need it the most.
Make sure a suitable life insurance plan is in your kitty.