Importance and Benefits of Tax Saving

Written by : Knowledge Centre Team

2024-08-02

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Importance and Benefits of Tax Saving

In order to ensure that a country’s government functions smoothly and provides the resources that its citizens need, income tax becomes an essential duty. Therefore, income taxes should not just be considered a burden to bear but rather a responsibility to fulfill.

Every tax season, taxpayers must make sure that they file their returns and pay their fair share of taxes. But keep in mind that the Indian government has also laid out various provisions that allow taxpayers to make their choice of investments and shave off considerably from their taxable incomes.

As a taxpayer, you should be just as concerned with overpaying your share of income tax as with underpaying it. That is why your process of tax return filing should always take the component and benefits of tax saving into account. To understand this topic better, let us explore the importance and benefits of tax saving further.

Incorporating Tax Saving Early

Every year, a growing number of working professionals are introduced to the taxation system. This includes various recent graduates and young, fledgling professionals. These are first-time taxpayers who are just venturing into their careers and therefore, do not have a large income to be concerned about. Keep in mind that under our tax system, an annual income of Rs. 2.5 lakhs is entirely exempted from tax.

It is easy at that stage in your career to not worry about tax saving being an essential part of your income tax process. The benefits of tax saving can seem inconsequential. However, this can often set an unfavourable precedent for years to come.

As your career grows and your income witnesses an increase, tax saving should become an important aspect of your tax planning every year. Higher incomes are subject to higher tax rates, which is why it is prudent to save up as much of your hard-earned income as possible. Hence, the aspect of making crucial investments that can lower your tax burden for years to come, should be inculcated as early in your career as possible.

Benefits of Tax Saving

There are various benefits of tax saving if it is incorporated into your tax returns every financial year, even if your income is not substantial at present:

The primary benefit of tax saving is that incorporating tax saving investments into your portfolio early on gives you a head-start for the future. Moreover, it gives a longer duration for your investments to start yielding returns for a period when you might need them most. This is particularly useful for market-linked tax saving investments such as Equity Linked Savings Schemes (ELSS), specific tax-saving mutual funds, and Tax-Saving Fixed Deposits.
All of these tax-saving instruments benefit from long-term investment spanning several years. As your responsibilities and needs grow in the future, their earnings can serve as excellent means of meeting your financial requirements such as education, weddings and retirement.
This can be especially achieved by investing in a tax saving option such as a term insurance policy. Even if you do not have any dependents or debt at present, investing in a term plan ensures that your family’s financial needs will be looked after even in your absence.
Tax saving also inculcates a financially healthy habit of setting aside a portion of your income for investments that can help you save taxs and protect your finances in the long run.
Most tax saving instruments offer more than just tax benefits. They also function as important schemes that build up a corpus to meet your short-term or long-term financial goals. Many of these tax-saving instruments are government-backed, which means that they are legitimate, transparent and dependable investments. The primary of these investments is the National Pension Scheme (NPS) which builds a corpus to help you meet your post-retirement needs. It also has a provision to provide you with a regular pension thereafter.
One of the benefits of tax saving is that you can avail deductions for a variety of essential long-term purchases. For instance, there are tax saving deductions in the Income Tax Act for interest accrued on your home loan, your education loan as well as your savings account. Moreover, if you stay on rent but do not receive House Rent Allowance, you can avail a deduction for your house rent amount.

Conclusion

At the end of the day, the benefits of tax saving look different for different taxpayers. However, one tax-saving option should always be considered by every taxpayer - a credible term insurance plan. To that end, an excellent option is the iSelect Smart360 Term Plan from Canara HSBC Life Insurance. Not only does the iSelect Smart360 Term Plan offer extensive coverage to your beneficiaries, it also allows you to avail deductions as high as Rs. 1.5 lakhs under Section 80C.

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