What Investment Options Come with Tax Incentives?

Everyone wants to save on taxes. But as an investor, when you look for options to minimize your taxes, you should also consider investment options that provide tax-free income in addition to tax exemptions. Also, it is critical to understand the safety, liquidity and returns of these investments to make an informed choice.

Most popular investment options with tax incentives:

• Equity-Linked Savings Scheme (ELSS): ELSS are diversified mutual funds that offer capital appreciation and tax savings simultaneously. ELSS has a lock-in period of three years. You can claim a tax deduction for ELSS investments made up to ₹ 1.5 lakhs annually under Section 80C of the Income Tax Act. Besides, earnings from ELSS up to ₹ 1 lakh are tax exempt.
• Unit Linked Insurance Plan (ULIP): ULIPs combine insurance and investment features to provide safety of funds and high returns. A part of the ULIP premiums is directed towards insurance, and the rest is invested in mutual funds. ULIPs have a lock-in period of five years. Under Section 80C, ULIP premiums, lower than 10% of the sum assured, are tax-exempt up to ₹ 1. 5 lakhs. Moreover, the maturity returns get a tax benefit under Section 10(10D).
• Life and Term Insurance:Life and term insurance policies help you save on taxes and protect your life. Under Section 80C, life insurance premiums up to ₹ 1.5 lakhs are exempt from tax. You can get a tax exclusion for insurance policies for your spouse, children and parents. Further, earnings on maturity are tax-free, specific to some conditions.
• Employee Provident Fund (EPF): EPF allows you to contribute (12% of your salary), and the same sum is contributed by the employer. These contributions are tax-free under Section 80C up to ₹ 1.50 lakh. Further, there is no tax on accrual of interest and withdrawal during maturity, under specific limits. Some companies also allow contribution above 12%, which is not tax exempt.
• National Pension System (NPS): NPS allows you to contribute in a secure pension account during your working years. You can take a part of your savings and invest the remaining in an annuity for a regular income. NPS investments up to ₹ 1.5 lakh are exempt from tax under Section 80C.
• Senior Citizens Savings Scheme (SCSS): SCSS qualifies for deduction under Section 80C with a term of five years. Senior citizens (above 60 years) can invest in this scheme. However, if you take voluntary retirement, you can opt for it after the age of 55.
• National Savings Certificate (NSC): NSC is a government-initiated, fixed income, tax-saving investment option with a lock-in period of five-years. NSC deposits up to ₹ 1.5 lakhs are excused from tax under Section 80C. There is no upper limit for NSC savings, and no TDS is applicable on the NSC payouts.
• Sukanya Samriddhi Yojana (SSY): SSY investments up to ₹ 1.5 lakhs are eligible for tax saving under Section 80C. Further, the interest income and maturity proceeds of SSY are also tax-free.
• Tax-saving Fixed Deposits (FDs): Tax-saving FDs allow you to secure your funds for a specific tenure, offering you earn interest thereon. These are tax-exempt under Section 80C. For a five-year tax-saving FD, you can claim an omission up to ₹ 1.5 lakhs. But, interest income on FDs is taxable.

Understand each investment option and then make an informed choice. Kotak Life offers various tax-saving investment options like term plans, life insurance policies, ULIPs, etc., with attractive returns, competitive features, and economical premiums. So, choose wisely!