Almost all of us practice savings in one way or another as that is our security blanket for the unforeseeable future. Whether it is for your dream house or car, or even your children, savings play a critical role in looking after yours and your family’s needs as the years go by.
It is common knowledge that as taxpayers, we all pay taxes on our income as well as our expenditures. The taxes levied on our income are called direct taxes, while the ones levied on our expenses are called indirect taxes. To reduce this income tax load, the Indian government has arranged for specific tax-saving investments that can help you save taxes better. You can read about some of these plans below -
Wondering About the Best Tax saving Investments?
Five-year Bank Fixed Deposit
This is a simple and straightforward tax-saving investment spanning five years and offers an interest rate of up to 5.30 - 7% (differs from bank to bank). Premature withdrawal is not allowed on this investment, and upon maturity, the proceeds directly go to your account. Up to 1.5 lakhs can be claimed under tax exemption as per section 80C. You can start this investment by simply logging into your net banking. Ensure that you disable the auto-renewal option while making this investment, or else post your five-year tenure, it will automatically get renewed for another five.
Term Life Insurance Policy
This is a type of life insurance that provides coverage for a designated time period or a chosen number of years. The returns here vary from plan to plan. Under this policy, one can claim tax deductions up to 1.5 lakhs as per section 80C of the IT Act. It provides financial protection to loved ones or the nominees in case of the untimely demise of the policyholder. This insurance policy provides high coverage for really low premiums (for e.g. - Cover of Rs. 1 Crore for a monthly premium of Rs. 500). Additionally, term life insurance tax benefits can only be availed post-issuance.
ULIPs
Unit Linked insurance plans or ULIPs are insurance policies that provide you with a life cover and the potential to save money that invests in debts, equities, or both. They come with a lock-in period of 5 years and the returns differ from plan to plan. Further, the returns are tax exempted as per section 10(10D) of the IT Act. You have the flexibility to choose your life cover amount (generally, it is ten times the amount on your annual premium) and the type of investment. Additionally, there are options for partial withdrawals as well.
PPF
A public provident fund is a popular long term investment scheme that offers attractive returns on the invested sum. The minimum lock-in period is 15 years which you can increase in slabs of 5 as per your requirement in the future. Further, the returns vary between 7 - 8% and are compounded annually. You can claim up to 1.5 lakhs under tax exemption as per section 80C. Partial withdrawal can be done post 7 years. The earlier you start on this fund, the better. A PPF account can be opened either by applying online or by filling out an application and submitting it with the necessary documents at your home branch.
ELSS
ELSS or Equity-linked savings schemes are tax-saving investments that come with the shortest lock-in period of 3 years and offer returns of up to 15-18%. You can make these investments by visiting the insurer or aggregator portals. This scheme has the potential of earning higher returns compared to other tax-saving investments as it is equity-linked. There is no limit on the amount that can be invested in any of these schemes, but the tax benefit is available only for Rs 1.5 lakh.
All the above-mentioned tax saving schemes qualify for deduction of tax under section 80C of Income Tax Act. However, they also have very distinct differences when it comes to maturity amount, time period, risks involved, returns, etc.
At the end of the day, each scheme looks different to a taxpayer, and they have their own list of reasons to choose one. As worried as you are about paying your taxes, you should also be aware of the plans and schemes that are available out there to help you save on them!
Choose a plan today and avail your 80C benefits!
