As most of us have a tendency to procrastinate, tax-planning also takes a backseat in that process. We only get to it when the financial year is coming to a close and accountants are busy fixing up everyone’s books. However, last minute rushing is not exactly prudent if you want to save money from taxes. A smarter approach is to invest your money in the early quarters of the financial year in tax-saving instruments. The early start also gives you enough to rectify any mistakes you might be doing in terms of investments.
Below are some of the best tax-saving investment options. As per Section 80C of the Income Tax Act, the deduction you make towards these investments is tax-deductible. Let’s have a look at them:
While Life insurance is not a pure -tax-saving option, but with the immense financial protection it offers to the policy holder, it is an option that everyone should have. Apart from cushioning you from financial burden of emergencies, life insurance premiums are tax-deductible, under Section 80C. The upper limit for this deduction is ₹1 Lakh. There are multiple policies available in the market: term insurance, ULIPs, Endowment plans and money back policies.
Apart from this, the lump sum amount that the beneficiaries receive is not taxable, as per section 10(10D). For a pension plan, the 1/3rd maturity amount received as lump sum is not taxable. The rest, received as annuity, however, is taxable.
While health insurance policies don’t offer perky returns like the other policies, the extent of coverage provided by such policies is worth the mention here. With policies, you enjoy a tax deduction on the premium amount of the plan, as per section 80D. The upper limit for this deduction is ₹15,000 and can be extended up to ₹20,000 for senior citizens. When combined with a health plan for senior members of the family, an individual plan’s can save up till ₹35,000 from their taxable income. Please note that section 80D is not applicable to the group health insurance by employers.
ELSS mutual funds
Designed for the purpose of tax-saving, Equity-Linked Saving Scheme mutual funds are one of the most-sought after schemes in the market. They are potentially high-risk instruments, with a lot of opportunities for high returns. ELSS funds have the shortest lock-in period of 3 years, as opposed to other options in this class of investment. You can also invest in an ELSS through a Systematic Investment Plan (SIP), wherein you only get to spend a small fixed amount every month, instead of paying a bigger sum in total. This feature makes the ELSS easy and affordable. You can further expand this capital through an SIP’s effect of averaging and power of compounding.
National Pension scheme
With NPS, the investor has the rare opportunity to surpass the 1 lakh limit of tax deduction set by section 80C. this is one of the very tax saving investment option that allow you this extension. Under NPS, the percentage of your basic salary that your employer contributes towards NPS is exempted from tax. However, the contribution towards NPS will still come under section 80C, and thus, will abide by 1 lakh limit.
Public Provident Fund
Issued by the Central Government, PPF is a long term saving scheme with unique benefits. The contribution you make towards PPF scheme are tax-deductible with an upper limit of ₹70,000. Additionally, the interest earned and received at the maturity is absolutely tax free. Being a govt. scheme, PPF also assures the investor an 8% rate of return on a guaranteed basis. However, the only thing putting people off is its lock-in period of 15 years, making it non-conducive for short term planning.
Now that you know of these multiple investment options, start planning at the earliest and put your money where it suits you best.