Tax savings imply a reduction in the amount of income tax that a person pays to the government. The Saving of Tax is done by a person so that he pays less tax to the government, as a result of which he is able to save money for himself.
Tax Saving in India can be done under various sections of the Income Tax Act such as Section 80C, Section 80D, and Section 88. These laws have been made by the government so that the people can do Tax Saving by investing in various schemes under these sections. The Section 88 of the Indian Income Tax Act offers a rebate of 20% if the total income is up to Rs. 1.5 lakhs and a rebate of 15% if the total income is more than Rs. 1.5 lakhs.
The various methods of Tax Saving are:
- Public Provident Fund (PPF)
- Insurance
- National Savings Certificates (NSC)
- Mutual Funds
- Pension Plans
A method of Tax Saving is by investing in Public Provident Fund and it is one of the most popular methods of Saving Tax. Under the Public Provident Fund scheme a person can make the maximum investment of Rs. 70,000 per year and the return rate is 8% per year which is tax-free. The lock-in period for this scheme is 15 years and partial withdrawals are allowed after 7 years. Another method of Saving Tax is by investing in the various insurance schemes. The maximum investment that a person can make in an insurance scheme depends on the policy's terms. In order to get rebate under Section 88, the total amount of premium paid has to be within the amount of Rs. 70,000. The amount of money that a person gets on maturity is tax-free and thus a person is able to undertake Tax Saving by investing in an insurance scheme.
National Savings Certificates is another method of Tax Saving which is very popular with the people. The interest that the people get in this scheme is taxable but a deduction under the Section 80L can be claimed. The rate of interest that the people get in the National Savings Certificates is 8% and the lock in period is 6 years. Another method of Tax Saving is by investing in mutual funds. The lock-in period is 3 years and although the amount of return is not fixed, the dividends that a person gets are tax free. Pension Plans is another method of Tax Saving. The funds can be withdrawn only when one attains the age of 50 years and the pension that is received is taxable fully.
Tax Saving must be done by each and every individual for it helps in reducing the amount of tax that a person pays to the government. Thus, by saving tax, a person is able to keep more of his money with himself.
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