PPF, Pension plans, FDs: How to save Income tax for the upcoming year

Saving money on taxes is crucial for financial planning. An effective tax-planning strategy can help people achieve their financial goals and reduce their tax burden at the same time. We receive warnings every year that tax planning season is upon us from the taxmen, the chartered accountant, or the employer. But let’s face it, at some point in our lives, we all have fantasized about living in a tax-free world. 

Taxes are perceived as a financial burden, but another factor that could increase the stress is ignorance of tax-planning strategies. Don't worry if this applies to you. To guarantee that your tax-planning journey is straightforward, we have put together a comprehensive and elaborate tax-saving guide.

(Also Read: ITR: Last day to file income tax return, here’s how much you will be fined if miss due date)

Here is a list of some of the top 2022 tax-saving investment choices and strategies that can aid people in maximising their tax benefits:

1. Public Provident fund:
Public Provident Scheme is one of the popular investment options for tax saving. You need to open a PPF account at the post office or specific branches of public and private sector banks to get started with long-term savings and investment products. A guaranteed rate of interest is earned on contributions to the PPF account. These deposits are eligible for Section 80C deductions worth up to Rs 1.5 lakh each fiscal year. 

2. Fixed Deposit:
By making investments in tax-saving fixed deposits, you can reduce your tax liability in accordance with section 80C of the Indian Income Tax Act, 1961. By making investments in tax-saver fixed deposits, you can deduct up to Rs. 1.5 lakh from your income. Such FDs have a 5-year lock-in period, and the interest received is taxable. Typically, interest rates fall between 5.5% and 7.75%.

3. Senior citizen savings scheme:
The Senior Citizen Savings Scheme (SCSS) is a government-sponsored savings programme for anyone over 60. It provides a reliable and stable source of income for people's post-retirement years and delivers relatively high returns. Section 80C of the Income Tax Act of 1961 permits tax deductions for principal deposits made into SCSS accounts up to a maximum of Rs. 1.5 lakh. But this exception is only applicable under the current tax system.

4. Life Insurance:
Life insurance is a crucial component of a person's financial plan since it provides protection to the person's family in the event of an untimely death. Life insurance, be it traditional (endowment) or market-linked (ULIP), offers tax benefits to policyholders on the premiums paid. There are several insurance plans to look after that can help you save tax. 

5. Pension plans: 
Pension Plans are another form of life insurance. They are referred to as protection plans and they serve a distinct purpose from other insurance plans like term plans and endowment plans. Pension plans aim at providing for the individual and his/her family if he/she lives on. Section 80CCC (a sub-section of Section 80C) of the Income Tax Act covers pension contributions. The total deduction allowed under all of Section 80C's sub-sections cannot be more than Rs 1.5 lakhs.