How ELSS and NPS can help you save more money on income taxes

How ELSS and NPS can help you save more money on income taxes

Tax-saving tools are designed to do exactly what they say on the tin: they’re supposed to help you save money on taxes. However, in terms of returns, these tax-saving vehicles have outperformed many investment instruments over time and have contributed to wealth building. This places them among the products that provide the best of both worlds in terms of tax benefits and capital appreciation. Vikas Singhania, CEO of TradeSmart, discusses two tax-saving instruments that will help you save the most money.

ELSS

“An Equity Linked Savings Scheme (ELSS) permits an individual or HUF to deduct up to Rs 1.5 lakh from their total income under Section 80C.” The programmes have a three-year lock-in term after which the units can either be redeemed or swapped,” Vikas Singhania suggested.

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“Other benefits of the programme include the availability of both growth and dividend alternatives, as well as the ability to invest through a Systematic Investment Plan (SIP),” Singhania added.

“These schemes often experience inflows between December and March,” he continued, “since most taxpayers utilise these three months to plan their taxes.” The monthly budget stress will be reduced if the entire year is used and a systematic investment plan (SIP) is started. This will also provide them with a better starting point and allow them to take advantage of the benefits of compounding and averaging.”

“Because they invest at least 80% of their assets in equities and equity-related securities, a tax planning fund provides greater returns.”

tax

“Investors commonly employ ELSS schemes in two ways. One is to reinvest the money when the scheme matures, avoiding the need for new capital after the initial three years. The SIP approach, on the other hand, is used by those with a larger income who need to use all tax planning tools. ELSS has been employed by such investors as a long-term investment instrument. “These schemes have given between 16 and 23 percent compounded annual return rate over the last five years, depending on the schemes one invests in,” he suggested.

NPS

“National Pension Scheme (NPS) has increased in popularity among tax planners and investors,” Singhania notes. The NPS is open to everyone between the ages of 18 and 70. You can keep contributing to the NPS until you’re 75 years old and still get tax benefits.”

“The higher returns it has been delivering are the basis for its popularity. New investors in the scheme can now invest up to 75% in shares, which explains why pension funds are investing more in the market. These funds are managed by top asset management firms chosen by the government.”

Investment restrictions on tax-saving fixed deposits, income tax

“Another benefit of this strategy is that it allows you to save taxes in three different ways. NPS investments are tax deductible up to the specified maximum of Rs 1.5 lakh under Section 80C. Additional Rs 50,000 can be claimed under Section 80CCD (1b), and don’t forget that the employee’s contribution to the NPS account qualifies for a tax deduction of up to 10% of the basic salary and dearness allowance under Section 80CCD(1) of the IT Act,” he added.

“Because of their investments in equity schemes, both ELSS and NPS have provided higher returns.” Over time, equity as an asset class will provide higher returns, despite being the most volatile. “However, if one receives the benefit of tax savings as well as the opportunity to create wealth over time, these instruments can be an important aspect of one’s financial planning,” he added.

ITR filing: How to Check the Status of Your Income Tax Refund Online

ITR filing: How to Check the Status of Your Income Tax Refund Online

When a taxpayer pays more in income tax than his or her actual tax burden, he or she is entitled to a refund of the difference. After due assessment, the excess amount paid is reimbursed by the Income Tax (I-T) department.

Refunds are available to taxpayers who file income tax returns. They must include paperwork verification of their earnings and deductions in their tax forms. Returns must be filed in order to receive a refund.

After the returns have been filed, the IT department validates them and determines if they are eligible for a refund. The refund is processed by the IRS only once the taxpayer has e-verified the return. The refund usually takes 25-60 days to be credited from the date of e-verification.

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When a taxpayer seeks a refund on his tax return, the tax department processes it, and the taxpayer receives an intimation from CPC under section 143(1) confirming the amount of refund that the taxpayer is entitled to.

So far this fiscal year, the IT department has provided refunds totaling more than 1.67 lakh crore to 1.87 crore taxpayers. This comprises 1.48 crore refunds totaling 28.704.38 crore for the fiscal year 2021-22 (ending March 2021).

income tax refund

Here’s how to check the status of your tax refund online.

Taxpayers who know their PAN number and the assessment year for which they want to check their refund status may find it useful. There are two methods for checking the refund on the internet.

  • New income tax e-filing portal
  • The NSDL Portal

Crypto assets are subject to a tax in the budget.

Using an electronic filing portal

  • Step 1: Taxpayers must go to the new e-filing portal for income taxes.
  • Step 2: Log in to your account using your user id, password, and “captcha,” then click “login.”
  • Step 3: Select “see returns/forms” from the drop-down menu.”
  • Step 4: Under “Select an option,” select “Income Tax Returns” and the relevant Assessment Year(AY), then click “Submit.” “and the refund status can be viewed.

Using the National Software Development Lifecycle (NSDL) portal

  • Step 1: Check the status of your reimbursement on the NSDL website.
  • Step 2: Fill in your PAN and Assessment Year information, then click “Submit.”
  • Step 3: The website displays the taxpayers’ refund status.

What should you choose in 2022: the new income tax regime or the existing income tax regime?

What should you choose in 2022: the new income tax regime or the existing income tax regime?

The Union Budget 2022 included no significant modifications to the tax slabs, either under the old or new tax regimes, which were implemented in 2020. So, how can a taxpayer choose between the new and old tax structures? In order to determine which regime would be more beneficial to a taxpayer, one must conduct a thorough analysis and comparison of tax expenditures and other criteria. Before deciding between new and old tax regimes, a taxpayer should think about a few aspects.

What should you do if you can’t decide between the new and old tax regimes?

In two ways, the new tax system differs from the previous one. For starters, it offers more tax slabs with lower rates. Second, if the new tax regime is chosen, all key exemptions and deductions available to taxpayers under the present (old) tax regime are no longer available. “If the benefit of lower rates in the new tax regime outweighs the value of exemptions and deductions available under the previous tax system, the taxpayer can pick the new tax regime”.

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The difference in slab rates is the most significant distinction between the old and new tax regimes. In India, taxpayers must pay income tax according to the slab system into which they fall. Individuals’ average income is taken into account while determining the tax slab. As a result, higher-income people will have to pay more in taxes.

The ability to cut taxes is another significant distinction between the old and current tax regimes. In the new tax regime, no deductions are allowed, while in the old tax regime, a taxpayer has a number of possibilities.

“While the new tax regime allows taxpayers to claim zero deductions or exemptions, the old tax system allowed taxpayers to claim roughly 70 deductions and exemptions in order to reduce their taxable income. Deductions help taxpayers to lower their tax bill by saving, investing, or spending on specific items”.

Which tax system is preferable?

Founder and CEO, Archit Gupta To determine whether tax system is preferable, the taxpayer should compute their income tax liability at the current normal tax rates, i.e. at old tax slab rates, after taking use of all available exemptions and deductions. Salaried individuals, for example, can claim the exemption for LTA, HRA, and the standard deduction of $50,000. Individuals can also deduct up to 1.5 lakh in interest on housing loans, NPS contributions, and other expenses under Section 80C.

Furthermore, the individual should compute his or her income tax liability using the new tax slab rates. They may now compare and choose the best tax system for them, he added.

Whether you choose the old or new tax regime is entirely up to you, and it will be determined by your income structure, available deductions, and circumstances.

Who should choose the new vs who should choose the old?

Choosing between tax regimes may be influenced by a number of factors, including current income level, income composition (i.e. sources of income), investment appetite, and saving habits, among others. Individuals must calculate their tax liability under both the old and new tax systems before deciding which is most advantageous.

To improve GST compliance, the CBIC will increase departmental audits.

“The Internal Revenue Service has also developed an easy-to-use calculator that determines which tax regime is most advantageous based on tax outflow.” When picking between the old and new tax regimes, one should weigh the benefits and drawbacks of each, according to Akash Kumar, Director and Co-Founder of Fincorpit Consulting Private Limited. The choice between a new tax regime and an old tax regime is made by the taxpayer.

“We’ve found that most taxpayers profit from being in the previous regime when they take advantage of section 80C and take advantage of tax deductions and advantages provided in their salary structure, such as claiming HRA, receiving a portion of CTC as reimbursements, and so on.” Only ten percent of Cleartax filers profited from the old system and chose to stay in it.

The younger demographic, which does not have many tax-saving investments, has also been shown to prefer the new tax structure.

“Many taxpayers are choosing the new regime because they don’t want to be locked into Section 80C investments, which have a lock-in term.” Instead of locking their assets in tax-saving options for 3-5 years, these taxpayers chose to invest in FDs.”

Is it legal to bounce back and forth between the old and new tax regimes?

If you are a salaried employee, you have the option to make this decision every year. “Individuals receiving income from ‘Salary,’ ‘House Property,’ ‘Capital Gains,’ and ‘Other Sources’ can select between the old and new tax regimes every year.” Individuals with income from a business or profession, on the other hand, only have one chance to revert to the previous tax regime after opting for the new one. They may only choose the new tax regime once in their lives.”