The citizens of a country are expected to pay regular taxes in order to ensure the smooth functioning of various government initiatives and operations that they benefit from. However, the Government of India has also laid out various provisions by which the country’s citizens can considerably save their taxes. This can be achieved only when an individual focuses on tax saving by making appropriate use of these provisions.
To understand the topic better, let us take a closer look at tax saving, as well as review the various benefits of tax saving:
What is Tax Saving?
Tax saving provisions come in the form of deductions, exemptions and allowances that a citizen can avail in order to reduce his tax burden. In order to make sure that you are fully utilizing the tax provisions available to you, it is important to carefully plan your finances and investments in advance. This process of lowering your tax burden through financial and investment planning is known as tax saving and can be implemented in a number of ways.
How to Implement Tax Saving
The specific type of tax saving suitable for an individual largely depends on his overall short-term and long-term goals. However, across the board, there are a few common tax saving methods that serve the financial needs of most taxpayers:
- Section 80C – This is possibly the most popular deduction availed by taxpayers under the Income Tax Act of 1961. To utilise the benefits of Section 80C, taxpayers can invest in a variety of options such as equity-linked savings schemes (ELSS), Public Provident Fund (PPF), National Savings Certificate (NSC) and various types of tax-saving fixed deposits.
- Section 80D – Yet another helpful tax saving investment can be made under Section 80D, which allows deductions for the premiums paid health insurance for self as well as specific family members.
- HRA Exemption – If you are a taxpayer living in a rented home, you can implement tax saving by availing the House Rent Allowance or HRA exemption on your rent.
- Section 80E – For taxpayers who have taken out education loans, a useful way of implementing tax saving is to avail Section 80E. This provision allows taxpayers to claim deductions on the premiums paid towards their education loans for a period of 8 years.
Benefits of Tax Saving
- Reduces Tax Liability – The first and primary benefit of tax saving is, of course, that it helps you considerably lower your tax burden. With the right approach to tax saving investments, you can make sure that your financial goals are fulfilled and you never have to overpay your share of tax.
- Provides a Head Start – Graduates and new professionals are often advised to get started on tax saving early on in their careers. The earlier you start making investments for tax saving purposes, the longer period your investments get to yield substantial, long-term returns. This is yet another benefit of tax saving.
- Encourages Financial Discipline – When your income starts accumulating, it can be tempting to splurge your finances on frivolous purchases. One of the more important benefits of tax saving is that it compels you to instead direct parts of your income in more fruitful avenues such as insurance, mutual funds, and retirement funds. This inculcates healthy financial discipline over time.
It is useful to remember that as a process, tax saving should be focused on not only during tax season but throughout the year. With the various investment opportunities available in the market, it is financially prudent to make the most of the tax saving provisions available to you and lower your tax liability in the long run.
Yet another financially prudent decision that every individual and family must make is to align themselves with the right financial institution. To that end, RBL Bank serves as the ideal choice with as many 8.7 million trusted customers nationwide. With a long-reputed history spanning as far back as 1943, RBL Bank can provide you with a wide range of financial services to meet your every requirement.