CHOICES FOR INVESTMENTS THAT WILL SAVE TAXES IN FY 2022–2023

 

During the current fiscal year, tax savings must be completed by March 31, 2023. If a person chooses the old tax system in FY 2022–2023, make sure you have made the required investments under section 80C to reduce your tax liability. Here are 9 investment ideas that will save you money on taxes for the fiscal years 2022–2023.

An individual taxpayer who intends to choose the old tax system for the current fiscal year 2022–2023 must finish their tax-saving activity by March 31, 2023, at the latest. Don't wait until the last minute if someone hasn't made any of the investments allowed under Section 80C of the Income-tax Act, 1961.

An individual may deduct up to Rs 1.5 lakh from their taxable income under Section 80C. By utilising this deduction, a person's taxable income decreases, which lowers their income tax obligation. If the full deduction is not used, a person whose entire income is subject to a 30% tax rate and a 4% cess will be required to pay an additional Rs 46,200 in taxes. If the maximum deduction had been taken, the tax bill would have been reduced by Rs. 46,200. (including cess)

Here are a few typical ways to reduce your tax bill under Sections 80C, 80CCC, and 80CCD (1). Keep in mind that the combined sum of all investments made under Sections 80C, 80CCC, and 80CCD (1) cannot exceed Rs. 1.5 lakh in a fiscal year.

One of the popular investment alternatives utilised under Section 80C to reduce income tax is the Equity-Linked Savings Scheme (ELSS) mutual funds. The most that can be claimed as a deduction is Rs 1.5 lakh. One of the riskiest investment alternatives in the 80C basket is ELSS mutual funds, which invest in equity and receive returns that are market-linked.

The lock-in period for ELSS mutual fund schemes is three years. As a result, after the money has been deposited, an individual investor cannot withdraw it until three years have passed from the date of the transaction. Among all the other Section 80C choices, ELSS has the shortest lock-in time. The maximum amount that may be invested in ELSS mutual funds has no upper limit. Each mutual fund house has a different minimum investment amount.

If redemption is made, the return on the ELSS mutual fund will be taxed. If all equity capital gains in a financial year exceed Rs. 1 lakh, the capital gains will be taxable.

PPF: Public Provident Fund is one of the most well-liked modest savings plans. PPF has an EEE tax status, which explains this. This means that PPF investments are tax-free, as are the interest payments made on them and the maturity amount.

PPFs are less risky than ELSS mutual funds because they are investments in debt. PPF has a sovereign guarantee because it is a government programme. Every quarter, the government releases information regarding PPF interest rates. The PPF is providing an annual yield of 7.1% for the January–March 2023 quarter. On March 31, 2023, the government will assess the PPF interest rate for the quarter from April to June 2023.

PPF has a 15-year lock-in term that begins following the end of the fiscal year in which the initial investment is made. For instance, if someone invests in PPF for the first time in August 2022, the 15-year lock-in term will begin to be calculated on April 1, 2023. The PPF offers loan and partial withdrawal options despite having a 15-year lock-in term.

PPF investments can be made for as little as Rs. 500 and as much as Rs. 1.5 lakh. PPF accounts can be opened at either a bank or a post office.

Keep in mind that a minimum investment must be made in a PPF account every financial year once one has been opened. If the required minimum investment is not made in a given fiscal year, the PPF account will be cancelled.

National Pension System (NPS): Under Section 80CCD (1) of the Income-tax Act, investments made in NPS are deductible. The plan provides the investor with a pension after they reach retirement age. Market fluctuations affect the NPS's returns.

10% of salary is the maximum deduction allowed under Section 80CCD(1) for NPS investments (basic salary plus dearness allowance). The most that can be claimed as a deduction is Rs 1.5 lakh. Hence, a person with a basic salary of Rs. 10 lakh is qualified to claim a deduction of Rs (1). He or she will need to look into alternative tax-saving investment possibilities in order to utilise the benefit of Rs. 1.5 lakh to the fullest.

The lock-in period for NPS lasts until age 60. For instance, if a person began investing in NPS at the age of 25, their lock-in period would be 35 years. Although NPS provides the option for partial withdrawal, such withdrawal is only permitted in certain situations. At maturity, a person may withdraw up to 60% of the corpus in one single sum. This one-time payment will not be subject to tax. The remaining 40% must be utilised to purchase an annuity plan. The received annuity or pension will be taxable to the individual.

There is no maximum amount that can be invested in NPS; the minimum commitment to NPS is Rs 500. To prevent having their NPS account cancelled, a person opening an account must make a minimum contribution of Rs 1,000 within a financial year.

Employees Provident Fund (EPF): For people who earn a salary, EPF is one of the most popular tax-saving tools. A salaried employee will contribute to the EPF account if the organisation is covered by the EPF law. A person must contribute 12% of their basic salary to the EPF account, and their employer will match that amount.

The government announces the interest rate for EPF accounts. There is a lock-in period until retirement for the EPF account as well. Nonetheless, there are some circumstances where a partial withdrawal from an EPF account is allowed. Also, an individual may totally take all funds from their EPF account and close the account if they do not find another work within two months of quitting their position.

The amount that can be put into an employee's EPF account depends on their salary. But, if a person wants to contribute more to the EPF account, they can do so through the Voluntary Provident Fund (VPF). EPF and VPF accounts follow the same rules.

The interest received on excess contributions will be subject to individual taxation if the total contribution to the EPF and VPF account in a fiscal year exceeds Rs 2.5 lakh. Taxes are not due on the maturity sum that is received from an EPF account.

Tax-saving fixed deposits: Another choice open to people to reduce their income tax in the current fiscal year is a five-year tax-saving fixed deposit. At a bank or a post office, a person can invest in tax-saving fixed deposits.

Banks provide different interest rates on tax-saving fixed deposits. The government releases the interest rate for fixed deposits that save on post office taxes. In the hands of the individual, the interest from tax-saving fixed deposits is taxable.

The lock-in period for tax-saving fixed deposits is five years. As a result, once money has been invested, it cannot be withdrawn until five years have passed after the date of investment.

For tax-saving fixed deposits, different banks have different minimum investment requirements. The post office's five-year term deposit requires a minimum commitment of Rs 500. The maximum amount that may be invested has no upper limit. Nevertheless, only up to Rs 1.5 lakh in tax benefits may be claimed.

National Savings Certificates (NSC): To reduce income taxes, an individual might invest in NSC. You can purchase NSC by going to the closest post office. Every three months, the government releases the interest rate for the NSC. The interest rate, however, is fixed once the investment is made and lasts until maturity. Today, NSC is providing a 7% annual interest rate.

NSC has a five-year lock-in period. As a result, once a person invests money, it cannot be taken out before five years have passed. In NSC, there is no maximum dollar limit and a minimum of Rs 1000. Nevertheless, Section 80C limits the tax benefit to Rs. 1.5 lakh. When the NSC reaches maturity, the interest earned is reinvested. In the hands of an individual, the interest from NSC is taxable. But, because the interest is reinvested, Section 80C allows for a deduction for it.

Sukanya Samriddhi Yojana (SSY) is a savings programme specifically for girls. A girl's parent can invest in the Sukanya Samriddhi Yojana and receive tax benefits. The government releases the Sukanya Samriddhi Yojana interest rate every three months. The plan now offers an interest rate of 7.6%.

The Sukanya Samriddhi account can be opened at a post office or a bank. After 21 years from the date of account opening, the Sukanya Samriddhi account will reach maturity. Nonetheless, deposits must be made for 15 years after the account was opened.

A guardian may open a Sukanya Samriddhi account for a girl child under the age of ten. In a bank or post office, only one account may be opened in a girl child's name. A family may open this account for a maximum of two girls.

The Sukanya Samriddhi account has a minimum and maximum deposit amount of Rs. 250 and Rs. 1.5 lakh every fiscal year, respectively. A financial year shall be considered a defaulted financial year if the minimum deposit is not made.

The EEE tax status, similar to PPF, is also a feature of the Sukanya Samriddhi Yojana.

Only senior citizens may invest in the Senior Citizens Savings Scheme (SCSS) to reduce their income taxes. The government releases the interest rate for the Senior Citizens Savings Plan once every three months. The plan now offers an interest rate of 8%. The interest rate is fixed after the investment is made throughout the duration of the scheme. The senior citizen receives interest payments every three months.

The programme has a five-year lock-in period. The plan does, however, permit early account cancellation. Accounts that are closed too soon face penalties as well.

The scheme accepts deposits as low as Rs 1,000 and as high as Rs 15 lakh. The maximum deposit limit would increase from the present Rs 15 lakh to Rs 30 lakh under the Budget 2023 proposal.

Taxes must be paid on the interest from the scheme. A senior citizen may, however, deduct the interest earned under section 80TTB.

Unit-linked insurance plans (ULIPs): A person might invest in ULIPs to reduce their taxable income. It is a type of insurance that provides both life insurance protection and the advantage of equity investing. Market fluctuations affect how much money ULIP products return.

The ULIP has a 5-year lock-in period. The person is permitted to withdraw the funds when the lock-in time has passed.

The amount that can be invested in a ULIP relies on a number of variables, including the policy duration, insured amount, and policyholder's age. If the total premium paid for all ULIPs in a financial year exceeds Rs 2.5 lakh, the maturity proceeds from the ULIP will be taxable.