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Income Tax Saving Tips for Middle Class Investors

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Saving up a corpus is every middle-class individual dream. However, if you are salaried or have an independent business, the taxes keep coming back to you. Even if the amount in hand is enough to feed a family, saving up is a mandatory ordeal in general and has to be prioritised.

Declare Your Taxes before It is Too Late

So, before you have your Human resources department bugging you for declaring your taxes or income, it is time that you take the reins in to your hands and make it work in your favour alone. If you have not utilized all the benefits listed under the Income Tax Act, it is a likely situation that there would be several deductions at the end of the financial year, i.e. in March. So it is time to gear up and prepare yourself in advance for the upcoming year, such that you do not lose out on big bucks.

But How Do I Do That?

There are multiple ways of tax saving investments, especially if you are a late middle class investor. It could be paying the optimized tax that is calculated after calculating tax free income, incidental actions and other which usually bring along a lot of tax benefits that you have been looking out for. But how do you do that?

  • Claim That HRA

House Rent allowance is one of the most underrated tax saving investment option. All you need to do is submit the rent receipts or that rental agreement and wait for it to get processed automatically. A part of the tax free salary component, the investment option scan gets you explicit exemptions which are devoid of inclusions of other sections of the Income Tax Act.

  • Add Medical Bills, Travel Allowance in Terms of Expenses

Several tax exemption benefits can be claimed in the form of medical expenses that need to have a proper bill, leave travel allowances need proper bills, conveyance allowance and the likes are non-taxable only if declared under the right sections with proper documents.

  • Equity Linked Savings Schemes or ELSS

One of the best and most recommended options, ELSS is an equity linked mutual fund scheme. Not only do you get tax benefits under Section 80C, but also get an option to have your funds invested in schemes that allow wealth creation which is always desirable. With superior returns going up as high as 16%, this particular investment option helps you stay afloat even during inflation. A lock in time of three years could be seen as a plausible drawback, but on a positive note, this is way lower than others such as PPF or the Fixed Deposits.

  • Public Provident Fund

One of the low risk option, this is perfect for non-adventurous investors. Not only does this option ensure guaranteed returns, but also ensures that you get 8.7% interest which is equivalent to the inflation rate. Tax free, lump sum deposits made here can be withdrawn after 15 years of investments. Extension is available, but for 5 years at a time and the entire amount is locked for a minimum of 5 years.

  • National Savings Certificate

Investments up to an amount of 150,000 INR is allowed under NSC. A 5 year locked in NSC gets you an interest of 8.5% whereas a lock in of 10 years gives you 8.8% returns. The interest accumulated is taxable. However, this interest can be reinvested as a new NSC which is complex, still saves taxes.

  • Home Loans, Educational Expenses, etc.

If you have fulfilled the idea of purchasing a home, it is recommended that you take up a loan for the same. The repayment of loan towards principle amount is completely non-taxable. However, the interest in this case isn’t.

Similarly, your school going children can help you save taxes too. Pick out their fee receipts as the Income Tax Act allows exemption for two children. The basic tuition expenditure is exempted under section 80C of the Act.

  • Employee Provident Fund

Not to be confused with the public provident fund, this one is not an optional deal especially for salaried individuals. Even if a lot of people might be excited about the idea of a provident fund, many tend to forget that it is eligible for tax exemptions under Section 80C. This has no specific lock in period and can be withdrawn easily when one switches jobs. Withdrawal before 5 years calls for a tax whereas withdrawal post that is non-taxable. A tax saving investment, this one is usually deducted at the source by the employer. Most of the times it is the same amount which the employer contributes towards the employee pension fund.

Tax saving investments can play a major role in saving the additional amount that you would have otherwise paid.