The best part about a job or business is the income you receive at the end of the month. However, the happiness is short-lived, as a portion of your income is taxed based on your tax slab. These taxes reduce disposable income and profits, affecting your ability to save, invest, or spend. Besides, tax-saving strategies are even more essential if your salary is above ten lakhs, as the tax slab for salaries above ten lakhs is 20%. Most people do not know how to save on tax for their salaries above ten lakhs. If you are also puzzled about ways to save on taxes, read further. In this article, we have simplified tips to get the most out of your income.
Consult a Wealth Manager
Consulting a wealth manager is always better than making crucial financial decisions on your own. A wealth manager evaluates your income, savings, expenses, and investments and uses their expertise to identify tax-efficient investment opportunities. The wealth manager stays informed about the latest tax laws and regulations and helps you make informed decisions, reduce the tax burden, and maximise wealth over time. They assist you in achieving financial goals while minimising excessive tax expenditures.
What is Tax Planning
Tax planning is a crucial aspect of your financial planning. It is a strategic process of managing finances to minimise the amount of taxes owed to the government. Tax planning involves evaluating income, expenses, savings, and investments to enhance tax efficiency. Consequently, by effectively planning, you can legally reduce the tax burden and preserve more of your income for personal use.
Unlock Tax-Saving Opportunities
There are several tax-saving financial instruments that you can employ to relish the benefits of tax-saving opportunities. We have enumerated a few for you:
Public Provident Fund
The Public Provident Fund (PPF) is a government scheme designed to offer long-term financial and tax benefits. Contributions to a PPF account are eligible for tax deduction under Section 80C of the Income Tax Act of 1961 up to a specified limit, typically 1.5 lakhs. Additionally, the maturity amount, including both the principal and interest, is exempt from income tax, making PPF a tax-efficient long-term savings instrument, encouraging people to save for their future while increasing disposable income.
Equity-Linked Savings Scheme
Equity-Linked Savings Scheme (ELSS) primarily invests in equities, offering the potential for higher returns compared to traditional tax-saving investment options. ELSS comes with a mandatory lock-in period of three years, which is the shortest among all tax-saving investment options. It permits you to claim tax deductions under Section 80C of the Income Tax Act of 1961 and save up to Rs. 46,800. Consequently, ELSS not only helps you save on taxes but also provides an opportunity for capital appreciation over the long term through equity investments.
Health Insurance
Health Insurance offers you tax benefits for the premiums you have paid under Section 80D of the Income Tax Act of 1961. If you are under the age of 60, you can claim deductions of up to Rs. 25,000. For senior citizens, this limit increases to Rs. 50,000. Consequently, these benefits make healthcare services more affordable. Moreover, they offer financial relief by reducing the tax burden.
National Pension System
In the National Pension System, contributions made to the NPS are eligible for tax deduction under Section 80C of the Income Tax Act of 1961. Additionally, a deduction of Rs. 50,000 is available under Section 80CCD(1B) for NPS contributions, providing an extra incentive for savings towards retirement. Moreover, 60% of the corpus is withdrawn tax-free, while the remaining 40% is used to purchase an annuity, which is taxable. Consequently, NPS offers an attractive and convenient retirement savings option.
Term Life Insurance
Term Life Insurance is an insurance policy that provides life cover for a specific period, typically 10, 20, or 30 years. If the policyholder dies during the policy term, their beneficiaries will receive a tax-free death benefit under Section 80C of the Income Tax Act of 1961. This tax advantage provides financial security to the beneficiaries of the insured person. It ensures that they receive a tax-free payout to cover expenses that occurred in the event of the insured person’s death.
On a Parting Note
For individuals with salaries above ten lakhs, tax saving is not just a strategy but a necessity. Effective tax-saving measures can significantly reduce your tax liability, providing you with more disposable income and financial security. To enhance your tax savings, plan your investment wisely, utilize the deductions available, and explore long-term wealth creation opportunities. Lastly, to make the most of the tax savings options available to you, consult a certified wealth manager.
