Essential Tax Saving options and investments for salaried employees

As per the Income Tax department’s rules, any individual having income above the prescribed basic exemption limit is mandated to file an Income Tax Return (ITR) for the fiscal year. The government provides several options to reduce Income-tax liability, which are described as ‘tax saving instruments.’

A salaried person would have in-depth knowledge of tax-saving options if the person understands the basics of income tax. The government imposes tax on individuals based on tax slabs determined by the government. The tax is deducted at source (TDS) for salaried individuals.

Section 80C for Tax saving

Section 80C is the most popular way to save tax under the Income Tax Act. The particular section allows a salaried taxpayer to claim deductions of up to Rs 1.5 lakh every financial year on various investments.

Public Provident Fund (PPF): It is a central government-controlled savings scheme with tax benefits. The deposit in PPF account qualifies for deduction under Section 80-C of I.T.Act. The interest earned in the account is free from Income Tax under Section -10 of I.T.Act.

Employee Provident Fund (EPF): The return earned from EPF, including the interest, is eligible for tax exemption under Section 80C of the Income Tax Act, 1961. The rules state that the exemption will be given to employees who have continued with their service for at least 5 years.

Equity Linked Savings Scheme (ELSS): One can claim a tax rebate of up to Rs 1,50,000 by investing in ELSS mutual funds under Section 80C of the Income Tax Act. The ELSS fund category has a mandatory lock-in period of three years.

Life Insurance Premiums: Crores of people have opted for Life Insurance Corporation (LIC) schemes. The premiums paid for LIC policies can also be claimed under Section 80C.

National Pension System (NPS): NPS, a retirement savings scheme, managed by the central government offers additional tax benefits under Section 80CCD. Contributions up to Rs 50,000 made to National Pension System (NPS) are eligible for tax deductions, over and above the Rs 1.5 lakh limit of Section 80C.

Health Insurance Premiums: There are many Health Insurance schemes which allow the policy holder to claim deductions on premiums paid for health insurance under Section 80D. The maximum deduction allowed is Rs 25,000; for senior citizens it is Rs 50,000.

Home Loan: The Home Loan subscribers are eligible to claim deductions on the interest paid under Section 24(b). The Income Tax rules state that one can claim deduction of up to Rs 2 lakh every financial year.

Tax Saving FD: Tax Saving Fixed Deposit (FD) schemes, having a lock-in period of 5 years offer a maximum of Rs 1.5 lakh tax exemption on the principal amount, allow tax deduction under Section 80C.