19 ways to save tax this 2023 – Save tax in India

It’s the time of the year again! Everyone will get busy with finding ways to save tax. FinPlay presents to you 19 ways to save tax in 2023.

1. Insurance policy

A life insurance premium paid in the year can be claimed for deduction. Premium paid for yourself, your spouse or your children can be claimed under 80 C. Also, you can have more than one life insurance policy and premium paid for all are eligible for deduction.

2. Health Insurance

The premium paid for health insurance for self, spouse and children all qualify for deduction under section 80D. The deduction allowed in the category is Rs 25000 and Rs 30000 for youngsters and senior citizens respectively.

3. Preventive Health Check-Up

Within the limit of insurance, the person is eligible for a tax reduction for preventive health checkups up to Rs 5,000. Also, if the person is paying for parents/guardians’ health insurance then an additional Rs 25,000 (Rs 30,000 in the case of senior citizens) can be claimed. And within the limit, the person is also eligible for Rs 5,000 for preventive health checkups.

4. Medical expenses of disabled individuals and parent

If the individual or the dependent of the individual is disabled then under Section 80DD a maximum deduction up to Rs 1,25,000 is allowed to take care of the disabled person.

5. Provident fund (PF)

You can invest in the Employees Provident Fund (EPF) or Public Provident Fund (PPF) or both. You can also invest in Voluntary Provident Fund (VPF).

Employee Provident Fund (EPF): EPF is a deduction that the employer makes from your salary, this contribution forms part of 80 C.

Public Provident Fund (PPF): PPF is a small savings scheme offered by banks. Investments made in PPF have a lock-in of 15 years and give a fixed return according to the interest rate published by the Ministry of Finance every quarter. The interest rate on PPF stands at 8% effective from 1st October 2018 as per the latest govt. notification.

Voluntary Provident Fund (VPF): As the name suggests, the employee can voluntarily contribute to provident fund account more than the ceiling rate of 12%. This is entirely tax-free.

6. Sukanya Samriddhi Scheme (SSS)

SSS is only for girl child from age of 0-10 years. It pays 8.1% interest per annum, compounded yearly basis. There is a partial withdrawal of money after the girl turns 18 and full withdrawal after she turns 21. Minimum invest is Rs 1,000 and maximum investment in a financial year is Rs 1,50,000. However, if minimum Rs 1000/- is not deposited in a financial year, the account will become discontinued and can be revived with a penalty of Rs 50/- per year with minimum amount required for the deposit for that year.

7. National Pension Scheme

National Pension Scheme (NPS) is a pension cum investment scheme to provide old age security to Citizens of India. It is a voluntary and long-term investment plan for retirement under the purview of the Pension Fund Regulatory and Development Authority (PFRDA) and Central Government. These have a lock-in period till your retirement.

8. National Savings Certificate (NSC)

NSC gives an interest rate of 7.6% per annum, compounded annually but paid only on maturity. A minimum of Rs 100 is needed to open an account and there is no limit to the maximum amount. One can invest in NSC in multiples of Rs 100. However, the maturity is usually after 5 years from the date of deposit.

9. Equity Linked Savings Scheme (ELSS)

Tax-saving ELSS Mutual funds are eligible for tax deductions under Section 80 C. These funds invest in stocks and are hence linked to stock markets. These funds have a lock-in period of 3 years (lowest of any tax-saving option) and hence the investors can not withdraw their money before the 3-year period. However, these are the only Mutual funds that have a lock-in of 3 years.

10. Unit Linked Insurance Plans (ULIPs)

ULIPs are a variant of traditional endowment plan. ULIPs have a high premium. They offer investment in mutual funds along with insurance, therefore, there are many charges towards these. However, the charges on ULIPs are high. These include funds allocating charges, fund management fee, policy administration fee, fund switching charges, and agent fees.

11. Infrastructure Bonds

Tax saving infrastructure bonds are a good option in the fixed-income category. Investment up to Rs 20,000 in these bonds is eligible for tax exemption under Section 80CCF of the Income Tax Act. However, they have a maturity of 10-15 years.

12. Post Office Senior Citizen Savings Scheme

An individual who is 60 years or more can open an account. It pays 8.3% interest per annum paid quarterly. The maturity period is 5 years. One can invest only in the multiples of Rs 1,000, with a maximum limit of Rs 15 lakhs. Also, there is no limit on the number of accounts to be opened subject to maximum investment limit by adding balance in all accounts.

13. Five Years Fixed Deposit Scheme

Tax-saving FDs are a special category of FDs which have a 5-year lock-in period. Unlike regular FDs, premature withdrawals are NOT allowed from Tax-saving FDs. They qualify as an 80 C tax-saving instrument and thus investments up to Rs1,50,000 p.a. are exempt from income tax. However, the interest on these FDs remains taxable as per your income at marginal income tax rate. TDS of 10% also applies.

14. Repayment of Home Loan

Principal amount repayments on your housing loan are deducted under 80 C.

15. Interest Paid on Education Loan

The interest paid on education loan qualifies for tax deduction under section 80E. The deduction can be claimed by self, spouses, children or for students where he/she is the legal guardian. However, only the interest payment qualifies for a tax deduction and not the principal repayment.

16. Deduction on rent paid

Usually, HRA forms a part of the salary. But if your employer doesn’t give you HRA but make payment for rent for own residence then it qualifies for tax deduction under Section 80GG of Income Tax Act.

17. Tuition Fee for Children

Fees paid towards full-time education of your children can be claimed as part of 80 C deduction. This means fees paid to an educational institution, college or school. However, this deduction can be availed for a maximum of 2 children. And not for your own education or your spouse’s education.

18. Charitable Contribution

The contribution made to charitable organizations that have 80G certification qualify for a tax deduction of 100% or 50% depending on which category they fall.

19. Donations made for scientific research, rural development and political parties

Any donation made for scientific research or rural development is eligible for tax deduction under section 80GGA. Donations made for political parties are eligible for deduction under Section 80GGC.