Investing in tax-saving plans: After facing job loss and salary deductions during the COVID pandemic, now many employees are getting a salary hike, and it brings cheers to them because it gives them more money in hand and provides relief from high inflation.
While getting more take-home money, salaried-individuals must note that they will have to pay more tax, if all the available tax-saving avenues are not explored. Employees should try these investment plans if they wish to avoid paying more taxes as a result of the salary increase.
National Pension Program
National Pension System is one of the tax-saving investment plans. In addition to the Rs 1.5 lakh tax deduction under Section 80C, this scheme offers additional tax benefits. The National Pension System is a government-sponsored retirement savings plan that offers a variety of investment options, including equity, government securities, corporate debt and alternative investment funds.
There are two types of NPS accounts: Tier I and Tier II. In order to invest in the NPS, one needs to open a Tier I account. However, Tier II is a voluntary account. Under Section 80CCD(1B) of the IT Act, employees are entitled to a tax deduction of up to Rs 50,000 per financial year for National Pension System. Employees can also claim up to 10 percent of their salary (Basic Salary + Dearness Allowance) if their employer contributes to the NPS in their name.
Following a salary hike, you may be able to choose investments that qualify for the Section 80C tax deduction. For example, some can invest in the Public Provident Fund (PPF) or the National Savings Certificate, which offer higher interest rates than bank fixed deposits.
The Equity Linked Savings Scheme (ELSS) is another option for people looking for tax-saving schemes as they are primarily investments in equity and equity-linked instruments. The individuals can invest through the Systematic Investment Plan (SIP). A significant benefit of ELSS is that long-term capital gains (LTCG) up to Rs 1 lakh are tax free.
The VPF is a tax-free investment vehicle.
Salary individuals can also invest in the Voluntary Provident Fund (VPF) because it is a safe investment option, and the contribution can be deducted under Section 80C.