Hello Readers!
Taxes are something that we are liable to pay if we come in the category of earning individuals. Some pay higher taxes, while some pay low. Taxes to be paid by the earning individual are calculated based on how much they earn, however, there are ways that help these individuals to reduce their tax liability. If you are an investor, then you must be aware of various investments that can help you save taxes.
Generally, there are two types of investment with the help of which you can reduce your tax liability and save your taxes. The first investment that offers tax-deductible options and the second that offer tax-free returns. If you go randomly through the meaning of both these tax-deductible and tax-free, they may look similar, as both mean that you don’t pay tax, and hence, you save tax. However, both have differences, let us know about these.
Tax-Deductible Investments
As per Section 80C of the Income Tax Act, there are some investments that are qualified for a deduction on your taxes, that you are liable to pay to the government. The deduction is for the value of the investment from your taxable income. The total deduction has a prescribed annual upper limit.
For Example: under section 80C, you can deduct up to a maximum value of Rs 1,50,000 invested in Equity Linked Saving Schemes (ELSS, tax saving mutual fund), and other investments that come under Section 80C. This amount is deducted from your taxable amount, which ultimately reduces your tax liability.
Remember, the returns from this investment are not tax-free, rather your invested amount in this fund help you reduce your tax liability. As these funds have the upper limit defined for tax-deductible, investors can invest more or low in this security as per their tax-saving choices.
If they want to reduce their tax liability they will invest less or equal to the upper limit amount, and if they prioritize wealth creation, they can invest more than the upper limit.
Tax-Exempt Investments
There are some investments that offer returns, completely tax-free, which means the income that you earned through these investments is not taxed at all. For example, the interest you earn from investing in tax-free bonds like PPF is tax-exempt.
Also, if you have an annual income less than Rs 5 lakh, then your income offers you the benefit of tax-exemption, that is no tax is charged on that portion of your income.
Earlier, LTCG (Long-term Capital Gains) from Equity investing was also tax-exempt, but they are now they attract a 10% tax on their gains.
Well, saving tax or reducing tax-liability is always a choice of individuals, but it is always advised, don’t make it a prime choice while you decide your investment. Instead, make sure that the fund that you select for your investment is flexible, and has growth options.
For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).