How to enhance tax savings in 2023?

As salaried individuals, most of us have to focus on saving more money, and tax planning is one of the most integral parts of this process. The tax-saving schemes laid down by the Indian Government in the existing tax regime allow us to save taxes on our incomes and investments through deductions. As you plan your 2023 financial goals, know how saving taxes can benefit you and what are these tax-saving instruments.

Benefits of tax saving investments

• They grow your money with additional interest. Examples: Mutual funds, fixed deposits, ELSS
• They inculcate in you the habit of saving for your future
• They help you meet your short and long-term financial goals
• The instruments allow you to deductions for a long period. Eg: interest on home and study loan 
• They help you secure your family’s future

Tax Saving Instruments

Begin your tax-saving 2023 journey by knowing about the following instruments. The risk of investment varies depending on the lock-in period and the interest rates.

Fixed Deposits

• Invest in tax-saving fixed deposits(FD) to get a tax deduction of up to Rs 1.5 lakhs under section 80C of the Income Tax Act, 1961.
• The interest rate varies from 5.65% p.a. to 7.25% p.a. on FD and the interest is taxable
• The minimum lock-in period is 5 years

Provident Fund

• There are three types of Provident Fund-Public, Employee, and General
• Anyone except a HUF can open a Public Provident Fund (PPF)
• The investment is deductible under section 80C of ITA, 1961.
• The interest rate stands at 7.1% and the interest earned is not taxable
• Lock in period is 15 years but partial withdrawal up to 50% is possible after 7 years
• The employee contribution to Employee Provident Fund(EPF) is deductible under section 80C.

National Savings Certificate(NSC)

• Investments to NSC are made for retirement and are deductible under section 80 C (upto Rs 1.5 lakhs) and 80CCD (upto Rs 50,000) of ITA, 1961
• Fund managers manage the investments
• Lock in period is until you are 60 years
• Interest rates vary from 9% to 12%
• Partial withdrawal is possible after the completion of 10 years but not 25% of the amount
• Complete withdrawal is allowed if the accumulated amount is Rs. 2.5 lakhs or less

Equity Linked Savings Scheme (ELSS)

• ELSS are mutual funds that provide a higher rate of return(about 10-18%) by investing in various companies’ equity and shares
• The risk in investing here is higher than in others
• Lock in period is 3 years
• Post the lock-in period, the ELSS earnings are taxed as Long term capital gain rates (i.e @10% on income above Rs 1 lakh)
• Tax deduction of upto Rs 1.5 lakhs under section 80C can be made on the investment

Unit Linked Insurance Plans (ULIP)

• ULIP is another product that provides insurance and allows investment
• One can buy ULIP for self or family
• The average annual interest rate varies between 10%-16%
• Premiums paid for ULIP are deductible under section 80C upto Rs 1.5 lakhs
• After completing 5 years of ULIP (i.e the lock-in period), there is no tax implied on the surrender value

Health Insurance

• Section 80D provides a deduction on health insurance premiums paid.
• You can claim up to Rs 25,000 for you and your dependents (below 60 years) and Rs 50,000 for senior citizens.
• This deduction is applicable for individuals and HUF

Home Loan

• For individuals who have taken a home loan can claim a tax deduction on the repayment of principal upto Rs 1.5 lakhs under section 80C
• You can claim an additional discount of Rs 2 lakhs under section 24 on the interest paid on the home loan
• For first-time buyers who have availed of the loan during the period 1 April 2013 to 31 March 2017, an additional tax deduction of Rs 50,000 is available under section 80EE on the interest amount.
• If you have availed a home loan during the period 1 April 2019 to 31 March 2022, you get an additional tax benefit of Rs 1.5 lakhs on the interest under section 80EEA
• The individual cannot claim both Section 80EE and 80EEA deductions as the criteria are different for each.
• The tax exemptions on a home loan are applicable only when the purchase value of properties does not exceed Rs 45 lakhs

Education Loan

• You can claim a deduction on the interest on an education loan taken for higher studies (for self, spouse, or children) under section 80E
• There is no deduction on the principal amount of the loan
• You can claim the deduction starting from the year you start repayment of the loan till the loan repayment (subject to a limit of 8 years)
• There is no maximum limit to the deduction
• This is different from the tuition fee deduction paid for the full-time education of your children (maximum of two) which is claimed under section 80C.

Sukanya Samriddhi Yojna

• It is a savings scheme initiated by the Indian Government that provides financial security for your girl-child
• You can open the account before she attains 10 years of age and can contribute up to Rs. 1.5 lakhs per year
• The interest rate is 7.6% per annum
• The lock-in period is 21 years. However, you can close the account prematurely when she is 18 years of age
• The contribution is subject to a deduction under section 80C and the interest earned is tax-free.

Senior Citizens Savings Scheme

• A saving option for senior citizens to take care of their life post-retirement
• Anyone above 60 years of age can start investing in the scheme
• The lock-in period is 5 years and can be extended to another 3 years.
• The interest rate is 7.4%pa
• One can deposit a maximum of Rs 15 lakhs
• The deposit is deductible under section 80C to a maximum of Rs. 1.5 lakh

In addition to the above deductions, there are many others available under sections 80G, 80GG, 80TTA, 80EEB, and 54-54F depending on income types.

4 Tips to stop paying more taxes this year

Plan your investments well on time

Effective financial planning will not only help you double your income but also save immensely on taxes. Take careful decisions on the amounts to invest and the categories thereof such that you get the maximum benefit. In any case, a standard deduction of Rs 50,000 is allowed for all salaried employees.

Choose between the old vs new tax regime

With the increase in tax instruments and policies thereof, professionals may find themselves stuck in choosing the regime while filing tax returns. While the new tax regime lowers taxes on higher-income slabs, it disallows most of the deductions and exemptions. Here is the difference:

Even if you fall under the income bracket of Rs. 2.5 lakhs to Rs 5 lakhs, you will get a rebate of Rs 12,500 under section 87a that will ultimately reduce your tax liability to zero.

Find the right resources

Although the ITR website hosted by the Government lays down tax updates from time to time, it’s your prerogative to check them out. With our Mool tax calculator, you get a chance to understand how you can increase your in-hand salary.

Know the deadlines

Sometimes people keep putting off filing their tax returns and paying taxes on time. It could be due to a lack of awareness or certain ambiguity in the policies. However, this rids them off exploring the maximum deductions they can claim on their returns and earns them late filing penalty fees. Know the deadlines for tax filing (usually 31st July is the last day to file tax returns) and adhere to them.

Reducing your tax burden

Mool has been designed to simplify tax and thereby personal finance for you. It allows you to gain control on your take-home salary and gain maximum value based on your financial needs. If you haven’t tried already, Check out how much tax savings you can achieve with Mool Tax Savings Calculator. You can enter the numbers yourself into the Mool calculator without tweaking your CTC to see a definitive increase in your take-home salary. So, what are you waiting for? This financial year, adopt Mool to make the right financial decisions, reduce your tax burden and save more!