Investments are your financial buffer for the future, and practically everyone does it. True, some people have a more difficult time managing their savings than others. You may choose to utilize your money to purchase your ideal home, automobile, or support your child’s further education. Your investments are critical to meeting your and your family’s expanding demands. Many people begin contributing to their retirement savings with their first salary. We cut back on our expenditures today so that a piece of our pay can be saved for a brighter future. However, ‘Tax’ is a component that depletes a significant portion of your investments.
Many people become trapped in this complex web of taxation. Everyone dreads the income tax filing period. It’s that time of year when everyone is worried about how much tax they’ll have to pay. It can be daunting, particularly for individuals who have only recently begun working. However, you must comprehend the complexities since your cash is being paid in taxes.
There are several strategies to reduce the sum of tax you pay. These methods are essentially classified into two categories: costs and investments. Bills such as child tuition, rent, house loan repayment, health costs, and so on can significantly reduce your overall income, which is subsequently taxed. The second group refers to market based tax saving investments that are very efficient at their job of lowering your total tax liability. This post will showcase 10 of the most excellent tax-advantaged investing plans available to you. Although they all help you save money on taxes, they are all highly diverse in terms of features, returns, timeframes, and even how they function.
Best Tax Saving Investment Plans
Well, here’s a list of the top five tax saving investment schemes you may choose from.
1. Life Insurance
Life insurance is a kind of support net you make for your dependents, providing them with financial security in the tragic circumstance of your demise. The insurance coverage relieves you of the financial strain you bear for your family members. You must pay your premiums on time for your family to get a death benefit. Although life insurance is not a pure kind of tax saving investment, it consistently manages to gain a spot on the list of most acceptable tax saving investment plans accessible.
2. Public Provident Fund (PPF)
The Central Government’s Public Provident Fund (PPF) is a long-term savings plan. And PFF is one of India’s best tax-efficient schemes for employed individuals, and payments made to your PPF account each year are tax-deductible under section 80C of the Income Tax Act of 1961. The maximum deduction for these contributions is Rs 1.5 lakh.
3. Employee Provident Fund
Employers are required to deduct a portion of an employee’s pay and direct it to the Employee Provident Fund (EPF). Both the employee and the employer contribute to the EPF account regularly. The interest rate is calculated using the employee’s basic pay plus a component known as the dearness allowance in his or her total income. On retirement, the employee receives a lump sum payment that includes both his or her personal and employer contributions, as well as interest on the money.
4. Unit Linked Insurance Plans (ULIPs)
Unit Linked Insurance Products (ULIPs) combine insurance coverage and investment into a single investment plan. A ULIP allows you to invest in stocks, bonds, or mutual funds. When you purchase a ULIP, the business invests a portion of the payment in equity, debt, or other securities, while the remainder is used to offer insurance coverage.
5. National Pension Scheme
The National Pension Scheme (NPS) is an optional finite contribution pension system, similar to PPF and EPF, that has EEE (Exempt-Exempt-Exempt) status in India, which means that the whole corpus is tax-free at maturity and the full pension withdrawal sum is tax-free.
6. Health Insurance
Health insurance ensures that you can deal with any health issues that arise with a financial buffer. The most crucial component of life is one’s health, which cannot be overlooked. And, if you have a health concern, the insurance coverage will protect you financially.
7. Term Insurance
Term insurance is a type of life insurance that offers financial protection to the insured’s beneficiary for a certain period of time. If the policyholder dies during the policy term, the beneficiary is entitled to death benefits from the insurance provider. Term life insurance, often known as term assurance, offers coverage benefits in the form of a lump amount or at a defined rate of payments over a certain length of time. Term insurance contracts provide deductions under Section 80C of the Income Tax Act and additional deductions up to Rs 1.5 lakhs. Death benefits collected by the beneficiary are also tax-free.
8. Senior Citizens Saving Scheme
The Elderly People Savings Scheme (SCSS) is primarily for the country’s senior citizens over the age of 60. This long-term savings option is ideal for older folks since it delivers a consistent income stream with tax benefits. Section 80C permits for a tax deduction of up to Rs 1.5 lakh. Furthermore, there is no tax liability on the principal amount taken by the lawful heir or beneficiary upon the demise of the depositor.
9. Equity-linked Savings Scheme (ELSS)
An equity-linked savings scheme (ELSS) is similar to an equity mutual fund in that it invests at least 80% of its total assets in equities and equity-related products. An ELSS has a three-year obligatory lock-in period during which you cannot remove any funds. An ELSS is tax-free under section 80C of the Income Tax Act, with a total tax avoidance of Rs. 1.5 lakh.
Popular Saving Investment Plans
|Investment Option||Lock-In Period||Annualised Returns (3 Years)||Tax Status on Returns||Risk|
|PPF- Public Provident Fund||15 Years||8.00%*||Tax-Free||Low|
|NSC- National Saving Scheme||5/10 Years||8.00%*||Taxable with income||Low|
|Tax Saving Fixed Deposits||5 Years||6.5%-7.5%**||Taxable with income||Low|
|ELSS – Mutual Funds||3 Years||13% – 22%***||10% Taxable when Profit exceeds 1L in a year||High|
Now that you’ve learned about the best tax saving tools for today, it’s time to put your knowledge to use and invest in one of them to keep your hard-earned money from being drained during taxes. But, keep in mind that you should manage your savings not just for tax purposes but also for a more prosperous and financially secure future.