HOW TO REDUCE INCOME TAX AND GET FINANCIALLY FITTER AT SAME TIME?

Nobody gets wealthy overnight. It takes a lot of patience, hardwork, and willingness to save money to have a chance at being wealthy. If you don’t have a habit and plan of saving money, your goals of being financially strong and independent will be stillborn. Hence, you must look for opportunities to save more money than you regularly do. One of these opportunities is to reduce the amount of money you would have to pay as tax. The logic is simple, you pay less tax and you’ll have more money with you. However, tax is a mandatory payment made to the government and not paying the right amount can lead to legal trouble. That is not always the case. If you make certain investments, you are eligible for tax deduction sunder the Income Tax Act. Here are few of the investment options you can look into:

Tax Saving Fixed Deposits

When you put money into a fixed deposit, your plan is earn profits off the large amount of money you put in. meanwhile, your principle investment stays the same. A tax saving FD is a variant of the same fixed deposit plan. The only difference is that it falls under the coverage of the Income Tax Act.

As per its Section 80C, the amount of money you put into a tax saving FD can qualify you for a tax deduction. However, the exact amount that will be deducted is based on how much you invest. Furthermore, the maximum tax deduction you can get through a tax saving FD is INR 1,50,000.

Similar to many other forms of investment, tax saving fixed deposits have a minimum lock-in period. Until this locking period is completed, you cannot withdraw your investment. In the case of tax saving FDs, the minimum lock-in period is 5 years.

Equity linked savings schemes

A variant of mutual funds, equity linked savings schemes (ELSS) are also a great option of making investments and saving tax at the same time. Moreover, they are the only type of mutual fund that can earn you a tax deduction under Section 80C. As per this section, you can claim a tax deduction of upto Rs 1.5 lac each year.

Since 2018, the returns that you may earn from the scheme are taxable under the law. However, this taxation is not done under the regular tax slabs. In addition, they have conditions that reduce the amount of tax you may have to pay on the earnings you make through ELSS funds. For example, only long-term capital gains over the limit of Rs 1 lac will make you liable for a tax of 10%. Calculating 10% out of your INR 1 lakh earnings mean that you still have Rs 90,000 of your gains left with a chance of earning more in the future. In addition, ELSS also works on the principle of compounding. This allows your investment to grow even further than you may project it to. Happy investing!