10 Best Tax-Saving Investments for Salaried Employees
Tax-saving investments are one of the best ways to secure a stable financial future. Investing also helps build money-management skills and discipline. So, don’t just save your hard-earned money, invest in good tax-saving instruments. Here are the 10 best tax-saving investment options for salaried employees to consider. Check all the information before getting started. Read on!
Importance of Investing for Salaried Employees
Every employed and self-employed individual has to pay taxes to the Government within the due date. However, with the growing living costs, it can become difficult for salaried employees to reach their financial goals and fulfil their dreams. You can reduce your tax burden with tax-saving investment options offered by private organisations and the Government.
Top 10 Tax Saving Options for Salaried Employees
Following are the top 10 tax saving investment options for salaried employees:
- Unit Linked Insurance Plan (ULIP)
Unit Linked Insurance Plan (ULIP) is one of the most reliable investment plans for a salaried employee. ULIP makes sure that the family or dependant of the insured is financially stable after the unfortunate death of the latter. Section 80C of the Income Tax allows deduction of Rs. 1.5 lakh for the premiums paid towards a life insurance policy. Moreover, the maturity amount of such a policy is tax-free under Section 10(10D) of Income Tax. The income is tax-exempted only if the premium paid is not more than the sum assured.
Under Section 80C of Income Tax, the deduction has the following conditions:
- The insurance policy should be brought on or before March 31, 2012
- The insurance policy should be in his own name or in the name of his child or spouse
- If the insurance policy is brought on or after April 1, 2012 then the premium paid will be eligible for deduction only up to 10% of the sum assured
- Equity Linked Savings Scheme (ELSS)
Equity Linked Savings Scheme (ELSS), as the name suggests, is an equity-focused savings scheme. It has a lock-in period of three years and is one of the great options for wealth creation. But, you must remember that it is a high-risk high-return investment option. The investments made towards this scheme are deductible under Section 80C but returns more than Rs. 1 lakh are now taxable under long-term capital gains (LTCG).
- National Pension Scheme (NPS)
Salaried employees with a low-risk appetite should opt for National Pension Scheme (NPS). You can avail of deductions under Section 80C for the investments made. Also, you can get an additional deduction of Rs. 50,000 under Section 80CCD(1b).
- Gratuity
A salaried employee received gratuity upon retirement, resignation, superannuation, death or dismemberment. The amount is tax-free under Section 10(10). The following conditions are applicable:
- You should complete a minimum of 5 years of service to be eligible for the receipt
- The maximum limit of exemption is Rs. 20,00,000
- Tax Saving Fixed Deposit (FD)
A fixed deposit can be another great tax saving investment for a salaried employee. It has a lock-in period of 5 years and provides guaranteed returns. You can also claim deductions under Section 80C of Income Tax.
- Public Provident Fund or PPF
One of the main reasons PPF (Public Provident Fund) is a popular investment option is it comes under the exempt-exempt-exempt category of tax exemption. You can have your PPF account with a post office or a bank. One can claim a tax deduction for both the premiums and maturity amount under Section 80C of Income Tax. The maximum amount for deduction is Rs. 1.5lakh. It has a lock-in period of 15 years and allows another 5 years of extension upon maturity.
- Senior Citizen Savings Scheme (SCSS)
The Senior Citizen Savings Scheme (SCSS) is a great way of savings and future income for a salaried employee. It has a lock-in period of 5 years, and you can extend it for another 3 years. The minimum investment amount is Rs. 1000, and the investment limit in cash is up to Rs. 1 lakh. You can claim deductions of Rs. 1.5 lakh under Section 80C on the income.
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- Health Insurance Policy
A medical or health insurance policy is one of the wisest investment options you should choose. Medical emergencies can occur at any time, and preparation should be made beforehand for unforeseen circumstances. You can claim a deduction of up to Rs. 25,000 under Section 80D considering the following conditions:
- Premiums covering for self, children or spouse
- Investments made through a Central Health Government Scheme
- Any other scheme as announced by Central Government eligible for deduction
- Deduction of Rs. 25,000 for parents aged under 60 years, Rs. 50,000 if they are above 60 years of age and Rs. 1 lakh if both the insured and the parent are above 60 years of age
- Employee Provident Fund or EPF
Employee Provident Fund or EPF is the most common and best investment option for salaried individuals. Both the employee and the employer contribute 12% of their salary to the EPF. Under this scheme, both the fund and interest earned is free from tax, making it one of the popular tax saving investment option for salaried employees.
- House Rent Allowance or HRA
An employee residing in rented accommodation can claim a tax deduction on the house rent allowance received from the employee, which is part of the salary structure. HRA is tax-exempted under Section 10 (13A). Hence the taxable income is calculated after deducting the HRA from the income earned. However, if you live in your own house, the HRA received from the employer is fully taxable.
These are the 10 best tax-saving investments to help reduce the tax burden on salaried employees. Before closing, here’s a quick look at how salaried employees are taxed and how to file ITR (Income Tax Returns).
Understanding Income Tax for Salaried Employees
Income tax is calculated and paid for each financial year which begins on April 1 and ends on March 31 of the following year. You can start your job in any month of a year, and you have to pay the tax for that financial for the number of months in that financial year. You will get the details of the division of your salary and deductible tax amount in the salary slip provided by the employer. The employer deducts TDS (Tax Deducted at Source) for a salaried employee, and the minimum taxable amount is Rs. 2,50,000. Tax is deducted each year based on the income tax slab determined by the Income Tax department.
Filing ITR to Plan Investments for Salaried Employees
For a salaried individual, the salary might be the only source of income. However, if a person invests their income wisely in tax-saving investments in India, then the returns from those investments can decrease their tax liability to a certain extent. You have to mention these returns while filing for income tax returns.
The following documents are required while filing for ITR:
- Bank Statements of savings accounts
- Form 16
- Form 26AS
- TDS certificates
Final Word
Apart from the top 10 tax-saving investments, there are other ways to save taxes on the income of a salaried taxpayer. Learning how to save taxes on your income is as responsible as paying taxes to the Government. So, choose tax-saving options that will help you save on taxes as well as build a secure financial future.
FAQs on Best Tax Saving Investments for Salaried Employees
Ans: Yes, interest earned on a savings account is eligible for tax deduction under Section 80TTB of Income Tax for an amount of up to Rs. 10,000. This amount can go up to Rs. 50,000 for a senior citizen.
Ans: You can get a deduction of a maximum of Rs 2 lakh per year on the interest of a home loan repayment under Section 24A of the Income Tax Act.
Ans: Form 16 is for TDS on income under the head of the salary. Form 16A is for TDS on Income other than salary.
Ans: There is no maximum or minimum number of investment options specified for an individual. However, one has to keep in mind the maximum amount of deduction allowed under an option for an individual.
Ans: Following are the sections which allow deduction other than Section 80C:
24- deduction on interest for a home loan of up to Rs. 2 lakh each year
80D- for medical or health insurance premium payments for self, children or spouse
80EE- deduction on interest payment of the home loan for first home buyers
80EEB- deduction on loan for electric vehicle purchase
80G- for donations made to charitable trusts
80GG- income excluding HRA
80TTA- on interest received on savings account of maximum Rs. 10,000
54-54F- on capital gains
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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