2022 has not been kind to us. The pandemic hit us hard, and this aftermath has left us with many problems. Not only did the pandemic cause widespread damage to our economy, which took a while to recover from, but it also meant that prices of everything increased by 10-15%. This has made saving money very difficult for most people.
Now, seven months into the year, you haven’t saved anything yet! You’re not alone in this situation; many people haven’t been able to save anything yet this year for various reasons such as higher expenses due to rising prices or loss of income due to decreased work opportunities due to war or inflammation. Don’t worry, though – we’ve got your back. This article will discuss professional tax and how you can save tax by investing in tax-saving schemes.
What does professional tax mean?
A professional tax is one that state governments impose on people who make money in any way. Contrary to what the name would imply, professional tax applies to everyone. The list covers people from all fields of study, employment, and trade.
To make the population pay for the government’s services, a state government may impose a professional tax on those who generate an income. Professionals and non-professionals alike are taxed. It appears on the deduction side of a payslip. The annual maximum for professional tax has been established at INR 2,500 per individual. Professional tax is deductible according to Section 16(iii) of the Income Tax Act of 1961. This section allows employees to deduct their professional tax from gross salary while filing their income tax returns.
What is a tax rebate on income?
When you pay more in income taxes than you owe, the government refunds the extra money to you. You can receive a refund at the end of a fiscal year if you file an income tax return.
When you pay more in taxes than you owe, the government will give you a tax refund, which is what a tax rebate is. The government usually gives you a tax refund at the end of the year or whenever your income taxes are assessed.
If your yearly income falls within the tax slab modified each year, you may receive a refund of excess tax and interest. To claim your income tax refund, you must file an income tax return within a specified period.
Now that we have discussed taxes, let’s talk about the strategies we can use to save money on taxes.
What exactly are tax savings plans?
Tax saving is a way to keep more of your money. The government will only allow you to keep a certain percentage of your pay check or income, and any extra money is taxed. Tax saving schemes help you save money from being stolen by the government. The tax saving schemes are the best way to save tax, which can be claimed as deductions under the provisions of the Income Tax Act, 1961.
Different tax-saving schemes in India –
To save money on taxes, you should become familiar with these tax saving schemes:
Public Provident Fund (PPF)
Public Provident Fund is an option to save tax under Section 80C. A retirement plan lets you invest up to Rs 150000 per year. The Ministry of Finance sets the rate of interest, which matches inflation most of the time. Any interest earned is tax-free. The lock-in period is 15 years. After five years, you can withdraw subject to certain conditions. It’s one of the best methods for tax reduction.
Five-Year Bank Fixed Deposits (FDs)
Five-year fixed deposits are one of the best ways to save money on taxes under Section 80C of the Income Tax Act, 1961. They work just like regular savings accounts but allow you to earn more interest over a more extended period. You pay taxes on any interest earned at the end of five years.
Unit Linked Investment Plan (ULIP)
If you invest in a unit-linked insurance plan, you can claim deductions from your income under section 80C. Your investment can earn 5% to 11%, and the money you earn when you redeem the policy is tax-free.
Equity Linked Saving Schemes (ELSS)
Equity-linked mutual fund ELSS (Equity Linked Savings Scheme) offers greater returns of roughly 15% while saving taxes. Although not assured, the study shows that such earnings are feasible. Capital gains and returns are tax-free. The investment is easily deductible under Section 80C. The ELSS is a fantastic savings program that offers greater returns while enabling tax savings.
Premium of Life Insurance
Life insurance is a standard tax-saving measure under section 80C of the Income Tax Act. Life insurance policies protect people and their dependents from potential risks, but if somebody abandons the plan before the two-year mark, the tax benefit can be reversed.
National Pension Scheme
The National Pension Scheme includes both low-cost and tax-advantaged options. Returns vary from 3 to 10 percent, depending on your chosen option. There are a few constraints on this scheme; for example, withdrawals are taxed in addition to the maturity amount. It is not appealing only after retirement is a person able to access the funds.
Senior Citizens Savings Scheme (SCSS)
The Senior Citizens Savings Scheme (SCSS) is for senior citizens to save on tax. People who are above 60 years of age can invest in this scheme. The interest is taxable but primarily covered in the taxable limit. The limit for investment is Rs. 15 lakhs. There’s a lock-in period of 5 years also. The principal amount of the investment is backed by the government. This plan provides interest returns every quarter. The interest rate is occasionally defined by the Ministry of Finance. Section 80C allows for this deduction.
Some tax will be deducted from your salary or income if you’re a self-employed person or a salaried worker. Taxes are inevitable because they’re how our nation keeps its economic engine running. You shoulder the burden yourself and don’t allow anyone else to share it with you. Understanding tax rebate, professional tax and Indian tax-saving schemes available to you is essential. You can save some tax by investing in India’s tax-saving schemes if you know how and where to invest. A financial counsellor should always be consulted before investing.