Best Tax saving investment
Investing in tax saving instruments is an important part of a solid financial planning. Investing in a tax savings scheme provides you with tax benefits whilst also helping you accumulate funds that can be utilized in case of an emergency or unexpected expenses.
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Best tax saving instruments options under section 80C
- Fixed deposits: Investing in fixed deposits for five years offers you tax deduction under 80c of the Income Tax Act. Maximum of Rs. 1.5 lakh can be claimed as deduction. The interest offered usually ranges from 5% to 7.5%.
- Public provident fund: This is another popular investment scheme for long term savings. PPF accounts can be opened with a bank or at a nearest post office. You also earn a guaranteed interest amount and can claim deductions up to Rs. 1.5 lakh under section 80C.
- Unit linked insurance: Unit linked insurance plans are a type of life insurance plan that offers you the benefit of investment and protection. This investment option offers you different fund choices you can choose to invest in and helps you save tax under section 80C and 10(10D) of the ITR Act.
- National savings certificate: this is a savings bond scheme for small to mid income investors to help them save as well as save tax. NSC investment can be done with a bank or at a nearest post office. Investment under this scheme can be done for self or for a minor with another adult as a joint account holder.
- Senior citizen savings scheme: This is a government sponsored savings scheme for individuals above the age of 60. This scheme is suitable for retired individuals and offers substantial returns. The principal amount under this scheme is eligible for tax deduction up to Rs. 1.5 lakh. However, it is important to note that the exemption is available only under the old tax regime.
- Life insurance: Life insurance is an important investment avenue that not only helps you create a strong financial future, but also helps you get tax benefits. Under life insurance, one can choose to invest in various policies such as term plan, endowment plan, ULIP, money back, etc. One can avail tax benefit up to Rs. 1.5 lakh under section 80C of the Income Tax Act.
- NPS: National Pension scheme is another popular tax saving instrument that offers tax benefit up to Rs. 1.5 lakh under section 80C of the IT Act. Additional deduction up to Rs. 50,000 can be availed under section 80CCD(1). NPS is managed by fund managers who invest the money in three separate accounts i.e. corporate bonds, government securities and equity.
Tax saving mutual funds: Investing in equity linked savings schemes offers you tax benefits. This type of investment option is best suited for investors having medium to high appetite. Under this option, the lock in period is 3 years.
Other tax saving instruments beyond section 80C
Apart from getting tax benefits under section 80C, one can avail tax benefits on below as well
- Tax benefit on premium paid towards health insurance and home loan interest
- Deduction up to Rs. 1 lakh on health insurance under section 80D
- Deduction up to Rs. 50,000 on home loan interest under section 80EE of the Income Tax Act
Tax saving investment options for young unmarried taxpayers and couples earning single income
- Equity linked savings scheme
- Public provident fund
- Unit linked insurance plans
- Term insurance cover that is 15 to 20 times of your annual income
Tax saving plan for parents
One can save up to Rs. 2 lakh under section 80D by:
- Buying mediclaim health insurance for parents or for self
- Investing in child plans
- Investing in housing property and save tax up to Rs. 4 lakh under section 24(B) of the Income Tax Act
Additional sources you can save tax from
- Parents can claim tax exemption on school fees paid
- Save up to Rs. 2 lakh under section 80D
- Buying mediclaim cover for self, spouse and children
- Invest in property and avail savings on home loan interest up to Rs. 4 lakh
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What is the maximum limit up to which I can claim deduction under section 80C?
The maximum limit up to which you can claim deduction under section 80C is Rs. 1.5 lakh
How can I reduce paying my tax legally?
You can reduce paying tax legally by investing in government approved schemes
What are the investment options under section 80C?
The investment options available under section 80C are: NPS, PPF, Life insurance, ELSS, Pension fund, etc.