When it comes to saving on taxes, you’ve got a lot of options. There are many ways to keep more of your money, and there are also different kinds of income tax saving schemes offered by the government of India.
When choosing an income tax saving scheme, it’s essential to consider the factors like safety, returns, and liquidity. It’s also essential to understand how the returns will be taxed—if they’re taxable, then the scope for long-term wealth creation gets constrained.
In this article, we’ll talk about the different income tax savings schemes offered by the government of India and how to calculate your income tax before knowing what’s left with you after taxes have been taken out.
Income Tax Saving Schemes
If you invest in the income tax saving schemes offered by government and private organizations, you’ll be able to reduce your tax burden. The Indian Income Tax Act allows people to claim tax deductions and exemptions under various sections, including Section 80C, 80D, 80CCF, and others. Government and private organizations offer several investment options for Indian residents.
Income tax savings plans are provided by the pertinent sections of the Income Tax Act of 1961. The most important of these is Section 80C, which may allow for annual tax savings of up to Rs. 1.5 lakhs. There are other portions as well that offer advantages to people. Essential tools for reducing income taxes include:
- Public Provident Fund (also known as PPF): You can contribute a maximum of Rs. 1.5 lakhs annually to this tax-saving program. PPF cannot be withdrawn without penalty before 15 years.
- Unit Linked Insurance Plans (ULIPs): ULIPs allow a maximum exemption of Rs. 1 lakh per year under Section 80C. The maturity earnings are likewise tax-exempt in addition to the investment exemption.
- Tax Saving Fixed Deposit: A maximum of Rs. 1 lakh can be invested to receive tax benefits each year under Section 80C on Tax Saving Fixed Deposits, which have a fixed duration of 5 years.
- Employee Provident Fund:Another investment program eligible for tax benefits under Section 80C up to Rs. 1 lakh annually is Employee Provident Fund, or EPF.
- National Savings Certificates (also known as NSCs): Under Section 80C, you can utilize this instrument to generate interest that reduces your taxable income by up to Rs. 1 lakh annually.
- Infrastructure Bonds:This investment option permits an annual exemption of up to Rs. 20,000 under Section 80C. Investors are permitted to seek a tax exemption on interest payments of Rs. 15,000 under Section 80L. Interests are taxable.
- Tax Saving Mutual Funds: Under Section 80C, these funds permit annual exemptions of up to Rs. 1 lakh. Through mutual funds, ELSS are standard tools for tax savings.
It’s a hassle to save taxes, but figuring out how much you owe in taxes can be even more complicated. The income tax laws are constantly changing, and you might need some help understanding what applies to you and your tax liability. You can quickly and accurately determine your tax liability through online tax calculators.
What exactly is an income tax calculator?
Income tax calculator is a simple online tool that helps you estimate your tax liability according to the tax laws of the specific year. This tool only needs information like total yearly salary, rent paid, tuition fees, investments made, interest paid on loans, etc., and the calculators automatically assess your tax liability.
These calculators are straightforward to use. You need to enter information like total income earned in a year and the amount of annual investment made by you in the form of mutual funds or stocks. The calculator will calculate your taxable income and help you file your taxes online.
How to make use of the income tax calculator?
To calculate your taxes using an online income tax calculator, follow these steps:
- The tool will initially request information on the assessment year, tax-payer status (individual, HUF, LLP, businesses, etc.), gender, and residential status.
- Next, you would need to input your annual salary, which should include any bonuses or variable pay, as well as any rental revenue and mortgage interest for rental and owner-occupied properties. The pay must include all exemptions, including professional tax, standard exemption, leave travel allowance, and house rent allowance (HRA).
- After that, you will file tax-saving investment deduction claims under the relevant sections, such as 80C, 80CCD, 80G, 80E, and 80TTA. Only those filing under the old slab method are eligible for this. There are no accessible deductions for the new tax slabs (except the National Pension System, or NPS), however, the corresponding tax rates are lower.
- Once completed, your tool will ask for approval before automatically calculating your tax liability for the given year based on your provided data and the relevant tax slab.
What advantages can income tax calculators offer?
By accounting for crucial information like income, expenses, and investments, and income tax calculator is an effective tool for determining your tax due. Here are a few benefits of using a tax calculator:
- Simpler tax planning: Using an income tax calculator, you may determine which tax system is appropriate for you, estimate your liability, and determine any applicable tax deductions.
- Straightforward and reliable: By utilizing an online tax calculator, you may be confident of your tax liability calculation’s accuracy given the current tax rules. Online tax calculators reduce mistakes.
- Saving time: Tax planning is challenging, time-consuming, and frequently stressful. Additionally, manual tax estimation can be a little intimidating given the evolving legal landscape and the implementation of the new tax system. However, compared to manually estimating taxes, using these straightforward and user-friendly tools saves you a tonne of time.
- Cost-effective: Compared to experienced chartered accountants, online calculators are cheaper because they are free to use.
With so many income tax saving schemes the government offers, getting lost in the maze of information is easy.
Whether calculating tax liability or choosing the proper income tax savings schemes offered by the government; one should make an informed decision based on his own on your tax bracket, personal choices, and social obligations. If you want to make informed decisions about your tax liability and how you can save money on taxes, you must know what options are available to you.