Investment Options that Help in Tax Savings

Everyone knows that dealing with taxes requires planning and precision. Understanding the taxation system and organizing your documents accordingly can go a long way in this process. This blog post will focus on different tax savings options in India.

health insurance

Getting a health insurance policy not only shields you and your family from bearing financial burdens during a health crisis but also offers the chance for tax deductions under Section 80D of the Income Tax Act. health insurance premiums for policies for the self, spouse, and dependent parents and children qualify for tax deductions under Section 80D of the Income Tax Act.

Single Premium life insurance

While ordinary life insurance has provisions for tax exemptions on the premiums paid for a given period, single-premium life insurance involves a one-time payment. The complete premium paid is eligible for deduction under Section 80C of the Income Tax Act within the prescribed limit. However, it is prudent to note that some of these policies may be locked in whereby you cannot withdraw your money until a certain time or period, and there may be charges which may be incurred should you wish to withdraw the money before the stated time period.

Public Provident Fund or PPF

The Public Provident Fund (PPF) is one of the most successful long-term savings instruments offered by the Indian government and offers good tax benefits. It gives a higher rate of interest than most of the other fixed deposits and is tax-friendly under Section 80C. The amount deposited in PPF, along with interest, is free from income tax collection by the government. Further, PPF accounts are associated with a mandatory maturity period of fifteen years, thus helping people adopt correct saving procedures. It is one of the most popular tax savings investments that you can opt for.

Secure a Home Loan and Enjoy Tax Benefits Under Section 80C

Owning a home is one of the best things you could ever aspire to attain in life, and it has several advantages, one being the tax advantage. If you have taken a home loan to achieve this goal, you can also reduce your taxable income with exemptions available under Section 80C for the principal repaid and Section 24B for the interest paid. This can easily mean that your tax base is significantly lowered and thus will be very beneficial to you.

Charity

Interestingly, donating to charities can benefit both the receivers and the givers in terms of taxation. Contributions given to particular charitable establishments and funds recognized by the Income Tax Department are allowable under Section 80G.

Equity Linked Saving Scheme (ELSS)

You can obtain tax deductions on your investments in ELSS (equity-linked savings scheme) under Section 80C up to Rs. 1.5 lakh per annum. These investments are majorly deployed into equities and other equity-linked instruments and have the potential to earn attractive returns for investors, although the risks are higher than many other investment options as well.

ULIPs (Unit-Linked Insurance Plans)

ULIPs offer a combination of life coverage and investments in various equity, debt, and balanced funds. They come with tax deductions up to Rs. 1.5 lakh on their premium payments under Section 80C, subject to meeting certain conditions. ULIPs also have a lock-in period of 5 years while you can change your fund allocation strategy periodically based on changing market conditions and your financial goals.

How to plan your tax-saving investments for the year?

Investing in a tax-efficient manner is in the best position that should be planned beforehand. Here are some tips:

Assess your income tax slab: Knowing your tax slab makes it easier to deduce how much more you would need to save among the investments available.

Diversify your tax-saving investments: Be judicious when investing your hard-earned money in tax savings options. Diversification of assets is a smart way to do so. To achieve a perfect blend of tax-saving investments, it is suggested to invest in a combination of instruments such as PPF, ELSS mutual funds, and life insurance.

Invest early: The longer the period that your investment is subjected to, the more it has the chance to accrue in value.

FAQ's

How to save tax other than Section 80C?

Other sections of the Income Tax Act also provide for various tax deductions and exemptions. For instance, one available option is Section 80D for health insurance premiums, another one is Section 80E for the repayment of education loan interest and other special allowances comprising HRA (House Rent Allowance).

How can I save more tax on my salary?

Apart from saving taxes by investment, it is worthwhile to seek exemptions based on allowances received from your employer or the HRA (House Rent Allowance) and LTA (Leave Travel Allowance), amongst others. You can also avail the scheme provided by the Income Tax Department for the standard deduction.

Who can claim HRA exemption?

All working professionals, whether salaried or on a payroll, who pay rent can avail of HRA exemption. The exemption amount is the least of the following: There are three factors determining the Check-in amount one has to pay; is the Actual rent paid—10 per cent of salary, 50 per cent of salary if he resides in a metro city, or 40 per cent of the salary if he lives in any other city, and the Actual rent paid—10 per cent basic salary.

Do I have to pay taxes on the investments?

Tax implications on maturity amount vary depending on the investment option. In some cases, the maturity amount itself is tax exempt, while in others, only the interest earned is taxable. It's advisable to consult a financial advisor for specific details on each investment.