It is wise to begin investing in the first few months of the fiscal year. Doing so gives you plenty of time to plan your tax-saving investments and achieve your financial objectives carefully. Look at the top 8 tax-saving instruments that can help you save money on taxes and yield solid returns on your investment.
Let’s learn more about these tax-saving tools and their returns right now.
Tax Saving Instruments That Help You Save Tax
- Life Insurance Plan
- Health Insurance Plan
- Unit Linked Insurance Plan (ULIP)
- National Pension System (NPS)
- Equity-linked Savings Scheme (ELSS)
- Public Provident Fund (PPF)
- National Savings Certificates (NSC)
- Infrastructure Bonds
which instrument saves tax, Lets discuss all these instruments one by one in details.
Life Insurance Plan
Every income taxpayer should obtain a life insurance policy, not only for tax benefits but also to provide for their family in the event of their death. Section 80C of the Income Tax Act provides a tax advantage of up to INR 1.5 lakh for the life insurance premium paid. Additionally, section 10 (10D) of the act states that your life insurance policy’s maturity proceeds are tax exempt if the premium paid by you is not more than 10% of the amount for any year.
Health Insurance Plan
You have other tax-saving options, such as health insurance. You can get a tax benefit on the premium you pay under section 80D. Tax deductions apply to health insurance premiums up to INR 25,000, if you and your family are below the age of 60 years. You can claim a tax deduction of INR 25,000 for your parents as well if they are aged below 60 years. If you and your family are below the age of 60 years, and your parents are aged above 60 years, you can claim a tax deduction of INR 50,000 on the medical insurance paid for them. Your tax deduction remains the same in this case. If you, your family, and your parents are all above the age of 60 years, you can claim a total tax deduction of INR 1,00,000 (INR 50,000 for you + INR 50,000 for your parents).
Unit Linked Insurance Plan (ULIP)
ULIPs are practical tax-saving tools if long-term investing is what you are after. It provides investment and insurance. Your premium is invested partly in equities and debt securities and a portion goes towards life insurance, providing you with tax-free returns. You can anticipate good returns if you invest in a ULIP for 10 to 12 years.
National Pension System (NPS)
NPS is the ideal tax-saving tool if you are worried about retirement and want a plan to save you money on taxes. NPS is renowned for its flexible structure, investor-friendly features, and low cost. You can deposit a minimum of 6000 rupees here, either as a flat sum or in installments of at least 500 rupees. In the active choice option of NPS, your maximum permitted equity exposure is 75% up to the age of 50 years. For individuals aged 60 years and above, the limit is 50%.
Equity-linked Savings Scheme (ELSS)
Given that it has a three-year lock-in period, it is one of the best tax-saving tools for investors with short-term plans. Additionally, this equity fund offers the option of investing as little as INR 500 per month and produces attractive returns over the long term. You are not required to make additional investments after the lock-in period in this scenario.
Public Provident Fund (PPF)
For tax benefits under section 80C, PPF is one of the most popular solutions. This long-term savings plan features a 15-year lock-in period. After this period, you can extend your investment period in 5-year increments. The annual investment cap for tax deduction is INR 1.5 lakh. Either a post office branch or a bank branch can help you in opening a PPF account. Investments can be made in installments or as a lump sum up to a maximum of INR 1.5 lakh. The minimum investment allowed is INR 500. For professionals who work independently or investors who are risk-averse or not protected by EPF, PPF is among the best tax-saving tools available.
National Savings Certificates (NSC)
The Post Office offers a fixed deposit option called the National Savings Certificate (NSC). National Savings Certificates usually offer higher interest rates than bank fixed deposits.
You know your money is safe in this scheme because the Government of India supplies it. Furthermore, with this scheme, you can easily take advantage of tax savings provided by Section 80 C of the Income Tax Act. NSC is a tax-saving scheme but has a lock-in period of 5 years.
Infrastructure bonds are an excellent choice if you fall into the fixed income group and are looking for risk-free tax-saving instruments. Companies that fall under the infrastructure category and have been given the government of India approval issue infrastructure bonds.
With these bonds, you can earn a reasonable interest rate and good tax advantages. You can invest up to INR 20,000 in these bonds without tax under section 80CCF of the Income Tax Act. These bonds are also available to HUFs (Hindu Undivided Families).
A few infrastructure firms that issue infrastructure bonds include LIC and L&T Infrastructure. Plan your savings not only for tax benefits but also for a better and more secure future.
Other Investment Alternatives
To expand your portfolio, it is always a good idea to consider various investment alternatives. Thus, your risk is reduced, and your rewards are maximized. You can make investments in safer options such as fixed deposits and government bonds. Consider investing in stocks if you have a high-risk tolerance. One of the rapidly growing investment opportunities made possible by technology is P2P lending. The Fractional Matchmaking Peer-to-Peer Plan FMPP investors have earned upto 12% p.a. since launch
It is advisable to put what you have learned into practice and invest in one of these instruments to prevent losing your hard-earned money to tax. First, however, arrange your savings for a better and more secure financial future in addition to tax exemption.