If you are someone who is making money on their own and being their own boss, congratulations! Making money without having to deal with the nuances of a typical 9 to 6 job or co-worker can be liberating and pacifying at the same time. But remember that whether you are working in the corporate, government or if you are self-employed, at some point of time your income is going to be taxed and sooner or later you will be looking for investment options which might help you save some tax.
There are traditional and non-traditional tax saving options available in the market catering to investors of all types. The key to financial planning and successful investing is having a defined financial goal and investing in a scheme depending on your risk appetite. If you are self-employed and looking for tax saving instruments, continue reading.
Section 80C of the Indian Income Tax Act, 1961 allows investments of up to Rs. 1,50,000 in certain tax saving schemes which can be later claimed for a tax deduction. Here are some of the tax-saving schemes that come under Section 80C:
Here are some of these schemes:
Public Provident Fund
Most of the time employers open an EPF (employee provident fund) account on behalf of their employees where every month a dedicated amount is debited from the income earner’s monthly salary and directed towards EPF. But since you are self-employed and this doesn’t apply to you, you may consider investing in Public Provident Fund (PPF) to save some taxes. Public Provident Fund is a tax saving instrument launched under the purview of the Government of India. But remember that PPF comes with a minimum lock of 15 years and hence only if you have the tendency to remain committed for that long you should consider investing in PPF. The rate of interest set on PPF is subject to change and stands at 7.9 percent.
National Pension Scheme
National Pension Scheme or NPS is yet another government-backed tax saving scheme launched under the purview of the Pension Fund Regulatory and Development Authority (PFRDA) and the Central Government of India. NPS is a tax saving instrument that can be bought by employees of all sectors. NPS needs taxpayers to invest during their employment phase. A National Pension Scheme holder can withdraw some amount from your scheme. The remaining amount is paid out to the scheme holders in the form of a monthly pension. As per Section 80C, NPS investments of up to Rs. 1,50,000 lakhs are eligible for tax deductions.
While the above two tax saving schemes are usually opted by traditional investors who do not wish to take additional risks, if you are someone who wishes to invest in equity markets and save tax at the same time, you may consider investing in Equity Linked Saving Scheme (ELSS). ELSS is a tax saving scheme which comes with a three-year statutory lock-in. This means you cannot withdraw your ELSS units before 3 three years. The best think about ELSS is that it has the shortest lock-in period among other tax saving instruments. If you want, you can redeem your ELSS investments after three years and need not remain committed to these investments for a longer time period. However a lot of investor club ELSS investments with meeting their long term financial goals like building a retirement corpus. That’s because ELSS investments have historically given better returns to those who remain invested for at least seven to ten years. Here’s an example to help you understand how this tax saver fund works. If you are earning 13 lakhs per annum, that lands you in the 30 percent tax slab. If you invest 1.5 lakhs in ELSS you can bring down your taxable income to 11.5 lakhs and bring down your gross taxable income by claiming tax deductions.
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