Stop paying high taxes – there are legit methods to reduce your taxable income

by Lalita Dainik Loans

The Government has revised taxable income slabs in its last budget. Spruce up your knowledge on the various methods to save tax.

A high salary is a boon in today’s times of rising inflation and increasing living costs. But every salary also comes with its own pitfalls. Normally, one’s salary is structured thus that a large portion of it is the ‘take home’ component while the remainder goes towards the Employee Provident Fund (EPF) and taxes. Some employees negotiate the taxable income of the salary by trying to reduce it. The taxable income depends on the tax slab that the salary falls under.

There are defined tax slabs set by the Government of India (General, Women, Senior Citizens) and people file for their income tax returns based on those slabs. A good way to reduce the taxable income is to show investments in Government-approved tax saving plans. These are designed to encourage investment of income while also getting tax benefits for the same.

Consider the following tax saving options:

* Public Provident Fund (PPF): This is a good option with guaranteed returns that are tax free. The returns are normally at par with inflation and are available in a lump sum amount. You cannot withdraw money against the PPF account till five years of the investment are complete. Also, you can invest as little as Rs 500 per year and a maximum of Rs 1,50,000. The account is active for 15 years but can be extended by five years at a time.

* 5-year Bank FDs: You can save and invest your money in a five-year bank Fixed Deposit (FD) that has a five-year lock-in period. You cannot liquidate the FD even after paying a penalty during this period. You earn higher rate of interest on it as compared to a normal FD, but the interest is taxable.

* Life insurance: This is one of the best ways to save tax, since you also receive protection and coverage in the bargain. The premiums are tax deductible under Sec 80C of the Income Tax Act, 1961. Both term and whole life insurance policies receive this benefit.

* ELSS: The Equity Linked Savings Scheme is a tax saving equity linked mutual fund. These funds have a lock-in period of three years and the returns are quite high over the long term. The returns are tax free. You can invest up to Rs 1,50,000 in ELSS in a lump sum amount or through a SIP (Systematic Investment Plan).

* Pension funds: These funds provide retirees with a pension. They come in two investment types: Deferred annuity and Immediate Annuity. In the former, the person invests annually and on maturity, receives 60% of the corpus with the remaining being reinvested so that the monthly pension may be earned. Under Immediate Annuity, you invest a lump sum amount and start receiving returns from the next month itself. Paying up to Rs 1,50,000 gets a tax benefit.