Remember your first job, and all the earnings you made? It’s not all yours sadly. You need to pay a cut to the government as taxes. Most of us don’t make enough money in our first jobs to pay any taxes. But, at the same time, that doesn’t mean you shouldn’t file taxes. 

Legally, according to the Income Tax Act, if your annual income exceeds Rs 2.5 lakh, you will have to file ITR for that year. Although your tax liability will be zero, this acts as a documented proof of your income, which eases loan processing, VISA processing, and offers multiple other benefits. 

Ideally, tax planning should begin way before the financial year ends. The last date for declaring and submitting investment proof for tax purposes is 31st March of the financial year. For FY 2023-24, it is 31st March 2024. 

Since there’s barely a month left, here are a few tax saving instruments you can consider investing in to save taxes.

Tax-saving options under Section 80C

1) Public Provident Fund (PPF)

PPF is an instrument that falls under the EEE (Exempt, Exempt, Exempt) category. This is because the amount invested, interest earned, and gains made are all exempt from tax!

You can claim a maximum of Rs 1.5L deduction for PPF under Section 80C of the IT Act. PPF has a minimum deposit of Rs 500 and a maximum deposit of Rs 1.5L in a financial year. Do note that it also comes with a 15 year lock-in period, so it is suitable for your long term asset allocation. 

PPF currently offers a 7.1% interest rate. This is usually updated by the government every quarter. And yes, it is backed by the government and is a form of risk free investment. 

Also Read: Tax saving for AY 2024-25: Get more out of National Pension System (NPS)

2) Equity Linked Savings Scheme (ELSS)

ELSS is perfect for individuals with a higher risk exposure and tolerance towards equity. You can claim a maximum of Rs 1.5 L under Section 80C if you’ve invested in ELSS. It comes with a 3 year lock-in period. It invests at least 80% of the corpus in equities. Hence, it makes sense to be a part of your long term financial goals. 

PS: Equity in general should be a part of your long term portfolio allocation due to its volatile nature in the short term.  

Also note that every investment in ELSS has a lock-in of 3 years, even SIPs. Let’s say you invested Rs 5,000 in Jan 2024, then this Rs 5,000 will be redeemable only in Jan 2027. If you invest Rs 1.5 lakh in ELSS, you can save up to Rs 46,800 in taxes a year. 

Also Read: What do 10 digits of PAN Card mean?

3) Sukanya Samriddhi Yojana (SSY)

Just like PPF, even SSY is completely tax exempt and falls under EEE (Exempt, Exempt, Exempt) category. This initiative, which is a part of Beti Bachao Beti Padhao (BBBP) campaign, aims at helping parents build a corpus towards the education of their girl child. 

The minimum deposit per year is Rs 250 and the maximum deposit that can be made is Rs 1.5 lakh in a financial year. One can claim a maximum of Rs 1.5 lakh under Section 80C if they invest in SSY. The interest earned is 8% p.a. This is updated quarterly. 

The account will mature after 21 years but deposits can be made only for 15 years. Although, during this period, the account will continue to accrue interest. 

4) Tax Saving Fixed Deposit 

Wait a minute, do Fixed Deposits (FDs) help you save tax as well? Yes, but not all FDs. Tax Saving FDs have a lock-in period of 5 years. If you invest for 5 years, you can claim up to Rs 1.5 L under Section 80C for that particular FY.  

Tax Saving FDs offer interest rates between 5.5% to 7.75%. But do note, that any interest earned will be taxable. 

5) Life Insurance Premiums  

Do you have life insurance? If yes, any premium paid towards them are eligible for tax deductions under Section 80 C. You can claim up to a maximum of Rs 1.5 L in a financial year. This is again not restricted to holding one policy, you can claim it for multiple life policies as long as it’s within Rs 1.5 L in a financial year. 

You can only claim the deduction if the premium paid is up to 10% of the sum assured. For any premiums over 10%, the deduction won’t be allowed. Secondly, even in the case of maturity, if the premium paid was over 10% of sum assured, then proceeds will be taxable. If it’s less than 10%, then it’s tax free. 

Note: This is applicable for any policy purchased after April 1, 2012. 

Tax filing season is nearing. Hopefully everyone of you all are able to choose investment avenues to save taxes and make their declarations before 31st March 2024.