What is Tax Saving?

Tax saving refers to the strategies and actions individuals and businesses take to legally reduce the amount of taxes they owe to the government. It involves using various provisions and deductions allowed by tax laws to minimize one's tax liability. The primary goal of tax saving is to keep more of your income or profits while still remaining in compliance with the tax regulations.

What is Tax Saving Calculator and How it Works?

A tax-saving calculator, often referred to as a tax calculator or tax estimator, is a tool that helps individuals and businesses estimate the amount of taxes they will owe or the potential tax savings based on various financial inputs and deductions. It's a valuable resource for tax planning and can assist in making informed financial decisions. Here's how it generally works:

• Gather Financial Information: To use a tax-saving calculator, you'll need to provide detailed financial information. This typically includes your annual income, expenses, deductions, and any other relevant financial data.
• Select Tax Year: Specify the tax year for which you want to calculate your tax liability. Tax laws can change from year to year, so using the correct tax year is crucial.
• Calculate Taxes: Once you've entered all the necessary data, the calculator will use current tax laws and formulas to estimate your tax liability or potential tax savings. It will consider various factors like income, deductions, credits, and tax brackets.
• View Results: The calculator will provide you with an estimate of your tax liability or savings for the specified tax year. This information is usually displayed as a dollar amount.

Benefits of Tax Saving Calculator

Tax-saving calculators offer several benefits that can help individuals and businesses make more informed financial decisions and optimize their tax liability. Here are some of the key advantages:

• Estimate Tax Liability: Tax calculators provide an estimate of your tax liability based on your financial inputs. This allows you to plan for and set aside the necessary funds to meet your tax obligations.
• Tax Planning: They assist in tax planning by showing how different financial decisions can impact your taxes. This helps you make informed choices throughout the year to minimize your tax liability.
• Maximize Deductions: Tax-saving calculators can identify potential deductions and credits that you might have overlooked, helping you maximize your tax savings.
• Evaluate Tax Strategies: They allow you to evaluate the effectiveness of various tax-saving strategies, such as contributing to retirement accounts, making charitable donations, or timing capital gains and losses.
• Budgeting and Financial Planning: These tools can be integrated into your financial planning process, helping you budget and set financial goals with your tax liability in mind.
• Quick and Convenient: Tax calculators are easy to use and provide quick results, saving you time and effort in manual calculations.
• Educational Tool: They can serve as educational tools to help individuals better understand how the tax system works and how different financial decisions can impact their taxes.
• Confidence in Filing: By using a tax-saving calculator, you can file your tax returns with greater confidence, knowing that you've taken steps to optimize your tax situation and minimize your tax liability.

Deductions under section 80C - Tax Saving Calculator

When you make savings in specified modes of investments, you will be eligible for a benefit under the Income-tax Act, wherein section 80C provides for a deduction of such investments from the Gross Total Income, thereby lowering the tax payable. However, the deduction under section 80C is only available to an individual or HUF, and the maximum permissible deduction is INR 1,50,000.

You may directly compute the deduction amount using the calculator provided below. Here's step-by-step guidance on how to use the calculator:

1. Select the assessment year(AY) for which you want your taxes to be calculated (if you have invested in the year 2020-21, then your AY shall be 2021-22)
2. Select the status to indicate whether you are an individual or HUF
3. If you selected 'individual' above, enter the premium amount paid by you for life insurance policies of yourself, your spouse, and your child. However, if you selected 'HUF', the premium paid by the HUF for any or all of the HUF members will require to be entered. (note that the calculator is not designed to consider the year when a policy was issued. The deduction amount varies based on that)
4. Enter the amount invested in a term deposit of not less than 5 years with any scheduled bank.
5. Suppose you have made any other investments eligible for deduction under section 80C (refer to the list below). In that case, you may select it from the dropdown list and enter the investment amount in the following box.

These steps will lead you to an amount exempted under section 80C, which shall reduce your taxable amount. (the box after the others are greyed out, and the final answer doesn't change in the calculator)

• Premium paid for life insurance policy Premium paid on insurance policies of self, spouse or child (minor or major). In the case of HUF, the premium is paid for any member. It can be either a life policy or an endowment policy. The deduction limit shall be as follows:

  Particulars	Deduction u/s 80C
  Policies issued before 1.4.2003	20% of actual capital sum assured
  	Here, capital sum assured shall include the minimum sum assured but exclude: - the bonus over and above the amount of sum assured - the premium agreed to be returned
  Policies issued between 1.4.2012 and 1.4.2013	10% of actual capital sum assured
  Policies that are issued on or after 1.4.2013	Where the insurance is taken on the life of a person with any disability or disease as mentioned in section 80U or 80DDB, respectively: 15% of actual capital sum assured Others: 10% of actual capital sum assured

• Premium paid for a contract of deferred annuity taken on the life of the self, spouse or any child, provided such contract does not contain any terms for the exercise of an option to receive cash payments instead of the payment of the annuity.
  It is pertinent to note here that a contract for a deferred annuity can be entered into with any person and not necessarily with an insurance company.
• Any amount invested in the Sukanya Samridhi Scheme in the name of your daughter or any girl child for whom you are a legal guardian.
• Contribution to:
  1. Public Provident Fund
  2. Approved superannuation fund
  3. Unit-linked Insurance Plan, 1971
  4. Unit-linked Insurance Plan of LIC Mutual Fund
  5. Approved annuity plan of LIC or any other insurer as specified by the Central Government.
  6. Pension fund, which is set up by a mutual fund or by the administrator or the specified company
  7. National Housing Bank (Tax Saving) Term Deposit Scheme, 2008
  8. Additional account under NPS
  9. Senior Citizens Savings Scheme Rules, 2004
  10. Recognized Provident Fund
• Subscription to:
  1. National Savings Certificates (VIII issue)
  2. Units of any mutual fund or from the administrator or the specified company
  3. Notified deposit scheme of a public sector company that provides long-term finance for the construction or purchase of houses in India for residential purposes or any other deposit scheme concerned with housing accommodation or planning, improvement, or development of cities, towns, villages, or both.
  4. Specified equity shares or debentures or units of mutual fund
  5. Notified bonds issued by NABARD
• Investment in a five-year fixed deposit (FD) of a Scheduled Bank or Post Office
• Repayment of housing loan principal amount(including stamp duty, registration fee, and other expenses)
• Payment of tuition fees to any school, college, university, or other educational institutions within India for full-time education for maximum of 2 children but does not include donation\development\coaching fees.