Tarun Philar had been employed with a multi-national company for a little over a year and this was the first time he was paying taxes. Like many other newcomers, he too had no idea about the workings of the tax system. He had not made any substantial investments and he relied on the company provided health insurance plan. With just a few months to go, Tarun was desperate to make the right investments so that he could save tax. He knew relying on the Budget alone would not be the best idea.

Take charge of your money and cut down on your tax burden. Look at investments today.

How does the income tax structure work?

The salary of a person is the main factor here. Depending on how much you earn, you fall in an IT slab. The tax you pay is a percentage of your salary, as fixed in each slab. When you make investments, certain amounts of money get deducted from your salary. Thus, your taxable income reduces and you fall in a lower IT slab.

Investments that help lower taxes:

Take a look at the investment instruments that help save income tax.

Insurance

Insurance is a financial product that offers many benefits. Insurance covers your life and your health. At the same time, it acts as a savings tool and provides tax benefits. The premiums you pay on a health insurance plan and a life insurance plan are tax-free. The sum assured you receive from an insurance policy is also exempt from tax.

Mutual funds

A mutual fund is another good investment for saving tax. A mutual fund allows you to lock your money in assets invested in the stock market. You earn dividends and high returns on your investments. This capital gain is tax-free.

Unit-linked insurance plans (ULIPs)

ULIPs are financial tools that combine the benefits of insurance and investment. The premium you pay for a ULIP is tax-free. A percentage of the returns earned are exempt from tax as well. So, you could consider investing in a ULIP if you want to save income tax.

Home loans

A home loan is another financial product that helps you save tax. You pay EMIs on the loans you take to buy, construct or renovate a house.  As per Section 80C, you can get a tax benefit of upto Rs 1.5 lacs on the principal you pay for your home loan. Then, as per Section 24, you can get a tax benefit of up to Rs 2 lacs on the interest component you pay on the home loan. Yes, a home loan enables you to build your dream home. It also helps in saving income tax.

Other tax-saving instruments

The above-mentioned investment instruments are used most often to save tax. There are other investments you could use to save income tax as well. They are:

  1. Post office deposits: Post office deposits work much like fixed deposits. Deposits with a tenure of five or more years offer tax benefits.
  2. Tax-saving deposits: You can invest in a tax-saving deposit. Deposit up to Rs 1 lakh each year and save tax.
  3. National Savings Certificate (NSC): The NSC offers a safe investment opportunity. You also end up saving a lot of income tax.

The bottom line

The time is right for you to invest your money in a judicious manner. You do not need to wait for the government to alter the tax reforms. Wise investments will help your wealth to grow and save income tax.