With tax saving and investment deadlines right across the edge we need to be more than prepared. You can prevent tax deductions by investing in a number of tax saving instruments. And the best way to reduce the burden of tax savings and increase your savings is through making smart investments. Individuals can lower their tax burden by using several provisions of the Income Tax Act of 1961, such as sections 80C, 80D, 80CCF, and others.
Starting investments in the early quarters of the financial year is a better strategy since it gives you more time to prepare and get the most out of various tax-saving investments.
Let’s take a look at some of the best tax-saving investment plans here:
1. Unit Linked Insurance Plans (ULIPs)
ULIPs offer the dual benefit of life cover and wealth generation. It offers market-linked returns by putting a part of your premium into various funds (equity or debt or both) based on your risk profile. The remaining amount goes towards the life cover. You can also opt for additional fund allocations from the first policy year, as offered by Edelweiss Tokio Life – Wealth Secure+. This ULIP lets you save taxes under Section 80C and 10 (10D), along with free fund allocations and unlimited switching.
2. Life Insurance Policies
Be it a traditional, endowment, or market-linked plan, life insurance plans offer tax benefits on the premiums you pay. Section 80C allows you to deduct up to ₹1.5 lakhs in premiums from your taxable income. The maturity amount received as death benefit is also tax exempt under Section 10 (10D).
3. Pension Plans
Annuity-based plans are usually life insurance policies that secure your post-retirement years with a steady income stream. Some pension plans provide tax benefits under Section 80C, and some provide exemptions under Sections 80CCC and 80CCD. For instance, the National Pension Scheme (NPS) offers a tax deduction under Section 80CCD.
4. Public Provident Fund (PPF)
This long-term savings and investment plan is one of the best if you are a conservative investor. Contributions towards PPF earn a guaranteed interest backed by the government. The interest income is also tax-free. These contributions can be claimed as deductions under Section 80C.
5. Health Insurance Policy
Health insurance can cover urgent medical expenses related to pre-hospitalisation tests, hospitalisation, and post-hospitalisation treatment. Health insurance can cover your family members too. You can avail tax benefits under Section 80D. Further, if you pay a premium for a policy that belongs to a senior citizen, you can claim further tax exemption.
6. Equity-Linked Savings Scheme (ELSS)
ELSS plans are tax-saving mutual funds. They invest in equities and equity-related assets and have a lock-in period of 3 years. Investments towards ELSS are covered under Section 80C, and the maturity proceeds are tax-exempted under Section 10(10D). The ELSS plan provides a high rate of return on investment over a long period of time, as well as the benefit of tax exemption.
7. Fixed Deposits (FDs)
Tax saver fixed deposits let you claim deductions under Section 80C. These plans ensure capital protection along with guaranteed returns. Tax-saving FDs have a lock-in period of 5 years, but the interest earned is fully taxable. A fixed deposit is suitable for someone who has a very low risk appetite and want to save money for long term goals.
Rather than waiting till the end of the financial year to make hurried choices, consider purchasing the best investment plans in the first quarter itself. Remember, you not only have to aim for tax exemption, but also earn tax-free income with added benefits like life cover and guaranteed income.
