How to maximize your tax savings? tax saving schemes

You put in a lot of hard work into earning an income and so when it comes to paying taxes, you want to minimize your tax liability as much as possible. Even the Income Tax Act, 1961 allows you different avenues through which you can save taxes and reduce your tax liability by the maximum possible amount. There are different tax saving schemes which not only let you create a financial corpus for your future needs, they also help in maximizing your tax savings.

Here are four such tax saving schemes for you to choose from –

1. ELSS mutual funds

Mutual funds are popular investment tools for many because of their attractive returns and diversification of investment risks. Equity Linked Saving Schemes (ELSS) further sweeten the deal by offering you tax benefits as well. Investments made into ELSS mutual fund schemes are allowed as a deduction from your taxable income. You can avail a maximum deduction of INR 1.5 lakhs under Section 80C of the Income Tax Act and reduce your taxable income. As your taxable income reduces, so does your tax liability. Moreover, the returns that you earn from ELSS mutual fund schemes would also be free from tax up to INR 1 lakh. If your returns exceed INR 1 lakh, the excess would be taxed @10%.

2. Health insurance

A health insurance policy proves to be a financial relief when you or your family members suffer from any medical illness and incur heavy medical costs. The policy pays for the medical costs and spares you the financial horror. Besides giving financial relief, a health insurance plan is also tax saving in nature. The premiums that you pay for your health insurance plan are allowed as a deduction under Section 80D. You can claim a maximum deduction of INR 25,000 if you pay premiums for yourself and your family. The limit becomes INR 50,000 if you are a senior citizen. Moreover, if you buy another policy for your dependent senior citizen parents, the premium paid would be allowed as an additional deduction of up to INR 50,000. Thus, through health insurance premiums alone, you can claim a deduction of up to INR 1 lakh from your taxable income.

3. Term life insurance plans

Term life insurance policies prove to be a must for providing financial security to your family in case of your unfortunate demise. These plans cover the risk of premature death and have low premiums thereby allowing you to afford high coverage levels. Moreover, the premiums paid to buy the policy qualify as a deduction under Section 80C. Even the death benefit paid under the plan is fully exempted from tax under Section 10 (10D) of the Income Tax Act. Thus, term insurance plans provide the dual benefit of financial security and tax saving.

4. National Pension Scheme (NPS)

The National Pension Scheme was launched by the Government of India to promote retirement planning among individuals. Moreover, to make the scheme more appealing, the Government allowed additional tax benefits too. Investments done into NPS schemes are allowed as a deduction from your taxable income. You can claim a deduction on your investments for up to INR 50,000 under Section 80 CCD (1B). This deduction is in addition to the deduction of INR 1.5 lakhs offered under Section 80C. Even partial withdrawals done from NPS are tax-free in nature. When the scheme matures, you are allowed to receive 60% of the investment in a lump sum while the remaining 40% is used for annuity payments. This 60% of your lump sum withdrawal is completely tax-free in nature giving you a tax-free corpus for your financial needs.

So, these are some of the best and the most popular tax saving schemes. They help you plan your financial goals and also save taxes along the way. A win-win situation, don’t you think?