Tax-saving investments are an essential part of both salaried and non-salaried taxpayers as they offer tax deductions under various sections of the income tax act. As a smart investor, you should opt for investments that not only provide the benefits of tax exemptions but also helps you earn tax-free income.
However, many people take tax planning lightly. It is an essential aspect of your life which can provide you many benefits, including tax benefits if appropriately executed. It would help if you considered the following factors before choosing your right tax-saving investment:
Although there are various investment options to save tax that are available in the market, people usually get confused to decide what is best for them. Hereare the investments that will help you save tax and help you in wealth creation:
ELSS (Equity-Linked Saving Scheme) Mutual Funds
ELSS or Equity-linked saving scheme is a type of mutual funds that invest your money in equity, and it comes with a lock-in period of 3 years. ELSS is popular among people as it not only provides 12-15% of returns but added tax benefits also. You can start your investment from scratch with investing amount as low as Rs 500.
The returns on ELSS funds are taxable under LTCG or Long-Term Capital Gains Tax at 10% if your gains are Rs 1,00,000 in a financial year. If your funds pay dividends, then they are subject to DDT or Dividend Distribution Tax also, at 10%.
Fixed Deposits or FDs
One of the most common options of investment in India that is available in major banks and post offices of our country is Fixed deposits or FDs. The current rate of interest offered by bank FDs ranges from6% to 7.25%. Tax-saving FDs come with a lock-in period of 5 years, but you can’t take any loans against them. The interest in these FDs is fully taxable and subject to TDS. However, post-office FDs are not taxable.
Unit Linked Insurance Plans (ULIPs)
Unit Linked Insurance Plans or ULIPs are the insurance-cum-investment plans that offer the dual benefit of traditional life insurance cover and investment. It is popular among people as you can get insurance cover along with returns. They come with the lock-in period of 5 years. The premium paid by you gets divided into two parts, where one-half is invested in equities and stock (depending on your risk appetite), and other half provide insurance cover. Other than single premium ULIPs, all other forms of ULIPs are eligible for tax benefits.
Buy ULIPs plan from reputable insurers such as Max Life Insurance to enjoy the dual benefit of investment and insurance.
National Savings Certificate (NSC)
National Savings Certificate or NSC is a savings instrument created by the Government of India. NSC’s interest rate is reviewed every quarter, but currently, it is 8%. They come with a tenure of 5 years. The interest on National Savings Certificate is also eligible for tax deduction under Section 80C.
For Instance, If Mr. X has invested Rs 1,00,000/- in NSC, and it pays interest of 8%, then the interest amount, i.e., Rs 1,08,000/- will also be tax-deductible. Hence, your total tax deduction will go up to Rs 1,08,000.
Unlike FDs, you can take the loan against NSC.
Health insurance will not only take care of your medical expenses and hospitalization bills but will also work as a tax-saving investment. The premium paid towards health insurance provides tax benefit up to Rs. 25,000 under Sec 80D of the Income Tax Act.
Buying health insurance will take care of future uncertainties and will help you reduce financial burdens in the time of need.
Invest and Win Tax-Saving Game
You can be at the top of the tax-saving game by adding these investment options in your portfolio to save tax. Look for investments that provide multiple benefits such as Health insurance and ULIPs.
Also, before you invest your hard-earned money in any of the plan mentioned above, do follow tax-saving tipsfrom different reputable sources online to get the best deal possible on your term plan purchase.