As the new financial year begins, salaried employees must declare their tax-saving investments. One major decision is choosing between the old tax regime and the new tax regime. While the new regime has lower tax rates and an increased tax-free income limit up to Rs.12 lakh, it does not provide many tax-saving benefits. This is why many taxpayers still prefer the old tax regime, which allows deductions under various sections. If you also want to stick to the old tax regime, it is crucial to know the best ways to save tax effectively.
Tax Saving Investments Under Section 80C
Section 80C of the Income Tax Act allows individuals to claim tax deductions of up to Rs.1.5 lakh annually. Here are the top investment options under this section:
1. Employees’ Provident Fund (EPF)
Employees’ Provident Fund (EPF) is a mandatory savings scheme for salaried employees. Both the employer and employee contribute a fixed percentage of salary. The employee’s contribution qualifies for tax deduction under Section 80C, while the employer’s contribution is tax-free.
2. Public Provident Fund (PPF)
PPF is a long-term savings scheme backed by the government. It currently offers an interest rate of 7.1% per annum, and both the invested amount and returns are tax-free. It is an excellent choice for retirement planning.
3. Sukanya Samriddhi Yojana (SSY)
This scheme is designed for the financial security of girls below 10 years of age. The interest rate is 8.2% per annum, making it a good long-term investment. Both investment and returns are tax-exempt.
4. Senior Citizens Savings Scheme (SCSS)
For individuals aged 60 years and above, SCSS offers a safe investment option with an interest rate of 8.2% per annum. Deposits in this scheme qualify for deductions under Section 80C.
5. Equity-Linked Savings Scheme (ELSS)
ELSS is a tax-saving mutual fund scheme that comes with a three-year lock-in period, the shortest among tax-saving investments. It offers the potential for higher returns and is eligible for tax benefits under Section 80C.
6. National Pension System (NPS)
NPS is a retirement-focused investment that provides tax exemptions up to Rs.2 lakh annually. On maturity, 60% of the corpus is tax-free, while the remaining amount is used for a pension.
7. Tax-Saving Fixed Deposits (FDs)
A five-year tax-saving FD qualifies for Section 80C benefits, but the interest earned is taxable.
8. Home Loan Principal Repayment
If you have a home loan, the principal repaid during the financial year qualifies for tax benefits under Section 80C.
Additional Tax Benefits Beyond Section 80C
Apart from Section 80C, there are other ways to save tax in the old tax regime:
1. Home Loan Interest Deduction (Section 24b)
You can claim tax benefits up to Rs.2 lakh per year on home loan interest payments.
2. Education Loan Benefits (Section 80E)
If you have taken an education loan for yourself, spouse, or children, you can claim a tax deduction on the interest paid for up to 8 years.
3. Health Insurance Premium (Section 80D)
- Rs.25,000 deduction for health insurance premiums paid for yourself, spouse, and children.
- Rs.50,000 deduction for premiums paid for senior citizen parents.
- An additional Rs.50,000 deduction is available for senior citizens’ medical expenses.
Choosing the Best Tax-Saving Strategy
If you are opting for the old tax regime, it is essential to plan your investments smartly to maximize tax benefits. Consider a combination of ELSS, PPF, NPS, and insurance policies to get the best returns while saving tax. Proper tax planning will help you reduce your taxable income significantly while securing your future financially.
