For salaried workers, the tax filing season is a sign of worry and panic. You need to pay taxes for the financial year. Tax saving options are available.
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Indian taxpayers need to be aware of their tax slab as well as the income tax deductions available for salaried employees. This will allow you to understand how tax savings for salaried workers work and help you avoid any complications during tax planning. You can lower the income tax payable for salaried workers if you have the right financial instruments.
If you don’t know how to understand the deductions from income tax for salaried employees, it can be difficult. Many tools are available that provide tax benefits to salaried employees. These tools can have a major impact on your financial planning. Let’s take a deeper look at the tax savings options available to salaried employees.
Top 6 Tax Saving Options For Salaried Workers
There are many tax savings options available for salaried workers. You can save tax by using the Income Tax Act 1961. Indian taxpayers can save money by taking advantage of these tax benefits for salaried workers.
These are the top 6 tax saving options for salaried workers that are worth learning:
- Employees’ Provident Fund (EPF)
- Public Provident Fund (PPF).
- ELSS
- NPS
- Tax Savings FD
- Premium Life Insurance
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Let’s look at how each option can be used to save tax for salaried workers:
- Employees’ Provident Fund (EPF)
Employees’ Provision Fund, also known by EPF, is one the most popular tax-saving options for salaried workers. The Central Board of Trustees manages it. It was established under the Employees’ Provision Fund and Miscellaneous Act of 52.
Employers and employees contribute 12% to the Employee Provident fund under this scheme. Employees receive interest at a specified rate on their contributions.
EPF offers tax exemption, which allows salaried employees to save taxes. Tax exemption applies to the accumulated funds in an employee’s PF account, as well as any interest earned.
- Public Provident Fund (PPF).
Public Provident Fund (or simply PPF) is a tax-saving option for salaried people. It provides a return on investments that are exempt from tax and offers a tax-free tax savings. PPF is a great investment-cum-tax savings option for salaried workers. It allows them to plan for retirement and receive guaranteed returns.
PPF investments are included in the EEE (Exempt-Exempted-Exempt) category. This means that the amount invested in a PPF account can be tax-deductible under Section 80C. It also helps with income tax planning for salaried workers. The account’s accumulated funds, as well as the returns, are exempted from tax when they are withdrawn. This is one way to maximize tax benefits for salaried workers.
- Equity Linked Savings Scheme
ELSS is a financial tool that allows salaried workers to deduct income taxes. The Equity Linked Savings Scheme, or ELSS, is a tax-saving option that salaried workers can use. Investing in ELSS plans is eligible to be deducted from an employee’s taxable earnings u/s80C. It is important to note that ELSS schemes are exempt from tax and therefore it is not like other mutual fund strategies.
ELSS is a tax-saving option for salaried workers that stands out because it has a dual benefit – comparatively greater returns which are partly taxable. For gains exceeding Rs 1,00,000., ELSS returns after March 31, 2018 are taxable at 10%
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- National Pension Scheme (NPS)
The long-term tax savings options for salaried Indian workers is the National Pension Scheme (NPS). This plan is an investment option that falls under the control of the Central Government and PFRDA. NPS is a good investment option for those who are looking to save money and don’t mind taking a risk. It also allows salaried workers to deduct income taxes.
NPS investments are more tax efficient than Fixed Deposit (FD) and PPF, but can yield higher returns. Section 80 CCD (1) of the Indian Revenue Code provides tax benefits to salaried employees. 1.5 Lakh ceiling u/s 80CCE. It helps with income tax planning for salaried workers.
- Tax Savings FD
As one tax saving option for salaried workers, a tax-saving Fixed Deposit (FD) is very popular. This type of FD allows you to avail income tax deductions for salaried workers on investments up to Rs. 1,50,000. Section 80C covers the tax benefits that salaried employees receive.
There are other tax savings options available for salaried workers to help them create wealth. Tax-saving FDs, which have a lock-in period for 5 years, are considered the best option for tax savings.
Although FDs have a safe return, they are taxable. It is added to the ITR under the heading ‘Income From Other Sources’ and subject to the applicable tax rates.
- National Pension Scheme (NPS)
Life is full of uncertainties. You need to plan for financial security for your family members under life insurance. Although the main benefit of life insurance is to protect your family’s financial future, there are tax benefits that can be derived from such investments.
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Life insurance is a popular option for salaried workers to save taxes. To calculate how much tax you could save over a year, you can use an online calculator for insurance premium calculations. You can deduct the premiums paid towards life insurance. However, you have to limit your deductions to Rs. 1,50,000. These plans also exempt death benefits and survival benefits from tax u/s 10.10D. This means that investments in life insurance plans can result in tax savings for salaried workers.