Tax Savings Instruments You Should Know About
Updated On Feb 02, 2022
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Tax planning has been one of the methods for lowering your taxes and increasing your income. The income tax legislation allows a taxpayer to deduct certain investments, savings, and expenditures made within a given fiscal year. We'll go through some of the ways you may save money on taxes.
Most of us consider tax preparation to be a do-it-later chore, and so begin preparing as the fiscal year draws to a close. We manage to make unnecessary investments since there isn't much time left to establish a good investing strategy. It's a good idea to begin investing in the first quarter of the fiscal year. This gives you plenty of time to properly plan your tax-saving investments, ensuring that you reach your financial objectives. To know more about tax saving instruments, read on.
What Are Some Tax Saving Instruments That A Person Should Know About?
Following are some of the tax saving instruments that a person should know about -
1. Life Insurance Plan
Not only should every income-tax payer carry a life insurance policy for tax purposes, but also to protect his or her family's future in the event of his or her death. According to the 2019 budget, under section 80C of the Income Tax Act, life insurance plans can provide a tax advantage of up to Rs. 1.5 lakh. In addition, the lump sum paid to the recipient as a death benefit is not taxed under section 10 in the event of the insured's death (10D).
2. Health Insurance Plan
You can also attempt alternative tax-saving mechanisms, such as health insurance, in addition to the tax advantage under section 80C. It does not provide high returns, but it does provide tax benefits on premiums paid under section 80D. Tax deductions would be available for health insurance premiums up to Rs. 25,000. The ceiling for older folks has been raised from Rs. 20,000 to Rs. 30,000. If you buy a health insurance plan for yourself and your parents, you can deduct up to Rs 35,000 off your taxes. The lump sum payment made in the event of incapacity (as part of the personal accident rider) is tax-free.
If you're searching for a long-term investment, ULIPs can help you save money on taxes. It protects your investment by providing insurance. Your money is allocated in the debt and stock markets, providing you with tax-free income. Only if you spend 10–12 years can you anticipate good profits from a ULIP. A ULIP is a tax-advantaged investment product that lets you swap between equity and debt.
4. New Pension Scheme (NPS)
If you're worried over your retirement and want to invest in a plan that will save you money on taxes, NPS is the greatest option. Investor-friendly features, a low-cost structure, and flexibility are all hallmarks of NPS. Anyone can invest a minimum of Rs. 6000 in monthly instalments of at least Rs. 500 or in one single sum. As the investor, you get to choose how much money to put into gilts, corporate bonds, and stocks.
5. Equity-linked Tax Saving Scheme (ELSS)
Since it has a three-year lock-in period, it is one of the finest tax-saving devices for consumers who want to invest in short-term goals. In addition, with the option of investing as little as Rs. 500, this stock fund provides strong long-term returns. You are not obligated to continue investing beyond the lock-in period, as you would be with a pension, insurance plan, or ULIP. It is preferable to invest your money over a long period of time rather than in a single lump sum.
It makes sense to put what you've learned into practise and invest in one of the options above to avoid having your hard-earned money depleted at tax time. However, keep in mind that you should manage your savings not simply for tax purposes, but also with a better and more financially secure future.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.