- Date : 14/01/2022
- Read: 3 mins
Don’t want to pay high income tax? Here’s where to invest so that you can save tax in 2022.
Paying income tax every year may seem like a hassle, but it is also unavoidable. If you earn an income and fall in a taxable income slab, you are obligated by law to pay tax to the Government of India. Thankfully, the Income Tax Act, 1961 allows you to save tax by availing of the tax deduction on several investments.
You can save up to Rs 1.5 lakh under Section 80C with the following income tax saving options.
- Public Provident Fund (PPF): Backed by the Government of India, a PPF account is a safe income tax saving option that can be used for long-term goals like retirement. A PPF can offer a return of approximately 7% to 9% and provides a tax deduction under Section 80C.
Related: Own Multiple PPF Accounts? Here's How You Can Combine Multiple PPF Accounts Into One
- National Pension Scheme (NPS): NPS is a government-sponsored pension plan that offers tax savers a chance to save for their retirement and, at the same time, save tax. This scheme allows maximum tax saving of up to Rs 1.5 lakh under Section 80C and an additional Rs 50,000 under Section 80CCD (1B).
- 5-year tax saving fixed deposit (FD): FDs are among the most popular saving schemes in the country across income groups. A 5-year FD can also be used for saving on tax. However, the government deducts TDS on the interest earned.
Also read: Top 7 fixed-income investments in India
- National Savings Certificate (NSC): NSC is another government-backed savings scheme. It can be a good savings vehicle for investors with a low risk appetite. NSC has a lock-in period of 5 years, so it can be used for short-term goals such as buying a car.
- Equity Linked Savings Scheme (ELSS): If you are wondering where to invest to save tax and earn relatively high returns, consider a tax saving fund like ELSS. This is a type of mutual fund that primarily invest in equity. ELSS funds have a lock-in period of 3 years and can be used for various short- and long-term goals while also providing tax benefits under Section 80C.
- Life insurance premiums: The premiums paid towards a life insurance plan can be used for tax-saving purposes. Life insurance plans are one of the best tax saving options in India, and they also allow you to safeguard your loved ones in your absence. However, there are some essential criteria to qualify for a tax deduction. If the plan was issued before 31 March 2012, the premium should be 20% of the sum assured. However, if the plan was issued after 1 April 2012, the premium should be 10% of the sum assured.
- Home and education loans: You can claim up to Rs 1.5 lakh on the principal of a home loan under Section 80C. You can claim an additional Rs 2 lakh on the interest paid on the home loan under Section 24B. You can also claim a tax deduction on the interest paid on an education loan under Section 80E. There is no limit on the tax deduction.
We have listed seven investments that can help you can reduce your tax outgoing. Now that you know how to invest wisely and save on income tax, consider one of these investments to lower your tax output.