How salaried women can minimise tax burden? (2024)

Financial planning is crucial for everyone, but for salaried women, navigating the world of taxes can be particularly complex. As per recent data, 80% of Indian women lack financial literacy. Balancing career aspirations with personal goals often require strategic tactics to optimise income and manage liabilities. Given the landscape, excelling in financial management becomes even more critical for women now, since tax slabs are also gender neutral. In the era of progressive digitization, numerous opportunities have come up for women to optimise their financial strategies and minimise their tax burden.

In case of tax-saving strategies, it requires more than just skimming the surface of well-known deductions. While many are familiar with the standard playbook—claiming the standard salary deduction of upto Rs. 50,000 u/s 16(ia) of the Income Tax Act, 1961, leveraging employer-sponsored schemes like HRA and LTA, health insurance premium deductions upto Rs. 25,000 under section 80 D; PPF benefits under section 80 C and the perks for home loan interest payments, privileging women with an additional deduction of Rs. 1.5 lakh under Section 80EEA, deduction under Section 80CCD (2) of the Income-tax Act for investment made in the National Pension System (NPS); there exists a hosts of overlooked avenues that can yield substantial tax savings and this article aims to explore these untapped resources.

Life Endowment Policies

Insurance plays a vital role in financial security and offers significant tax advantages. Life endowment policies combine protection and savings, making them a popular choice for risk-averse women seeking tax benefits. Compared to term insurance- focused solely on providing financial protection in case of death, they offer guaranteed maturity payouts, providing both financial security and a lump sum for future goals.

In the case of life endowment policies, the premiums paid towards the policy each year can be deducted from the income, up to a certain limit (currently Rs. 1.5 lakh under Section 80C). This essentially reduces taxable income, resulting in lower taxes one needs to pay. One needs to know that tax savings for life endowment policies are equally applicable for men and women.

ELSS Mutual Funds

Not many working women are aware that ELSS mutual funds are turning out to be a strong tool for tax savings in today’s world. Investing in an ELSS entails a lock-in period of three years which is lesser as compared to PPFs. Contributions made to Equity Linked Savings Schemes (ELSS) within a financial year, up to ₹1.5 lakh, qualify for deductions under Section 80C of the Income Tax Act.

Investors in the highest tax bracket can effectively save up to ₹48,600 in overall tax liability by investing in these tax saving mutual funds which also allows the flexibility of SIP investments instead of lump sum investments.

However, salaried taxpayers transitioning to the New Tax Regime (NTR) should strategize their investments for maximum tax efficiency. While NTR adjusts tax slab rates and basic thresholds, it limits Section 80C deductions to a said limit. To leverage tax deductions beyond this limit, one should consider investing in the NPS or Atal Pension Yojana, offering deductions of up to ₹2,00,000 or ₹1,50,000, respectively.

Tax Free Bonds

For salaried women, they can look at long-term investment (10-20 years), and can confidently explore public sector organisation bonds, ensuring secured principal and payback. In Tax free bonds, the initial investment in these bonds and the final redemption amount is not exempt from tax, but they are very safe, considering they are government backed and have a long gestation period. These can be held both in physical form or demat form.

Unit Linked Insurance Plans (ULIPs) can also be beneficial for tax savings, as the premiums paid towards ULIPs are eligible for deductions under Section 80C of the Income Tax Act, up to a maximum limit of ₹1.5 lakh per annum. Also, the returns from ULIPs, including the maturity amount and fund value, are exempt from tax under Section 10(10D) of the Income Tax Act; this ensures that the accumulated wealth over the policy tenure is not subject to taxation.

One of the most enticing features of ULIP based schemes is the dual benefit, which combines insurance coverage with investment opportunities. While the investment component in ULIPs helps a consumer to participate in the financial markets, the premiums paid for the insurance component provide life coverage. And along with the tax benefit component, ULIP is today one of the most sought-after investment channels.

Thus, by harnessing the power of insurance, strategic investments, and expert guidance, salaried women can transform tax planning from a burden into an opportunity. One should remember that seeking professional guidance and staying updated on evolving tax regulations are key to navigating the financial landscape effectively.

Chetan Vasudeva, Senior Vice President of Business Development at Elephant.in

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Published: 27 Mar 2024, 02:18 PM IST