Taxes take a considerable portion of your earnings; a portion you would like to spend in a better way. One of the ways to save tax is investing in long-term investment options. The financial experts have always insisted on long-term investment. They help you generate a great corpus and act as the best tax saving investment option. Even though there are many options in the market for tax savings, one needs to choose suitable options so as to get more benefit. Let us see some of the best tax saving options.
1.Life insurance & Pension policies
Even though it’s not a pure tax saving investment option, it does give dual benefits. It gives you a life cover as well as you get tax benefits as per section 80C of the Income Tax Act, 1961 (hereinafter referred as “Act”) upto a maximum of Rs. 1.5 lakhs. The premium you pay for life insurance policies (including unit-linked) is deductible from your total income hence it lowers your taxable income. Furthermore, the lump sum amount paid to the beneficiary is also viable for tax exemption as per section 10 (10D) of the Act.
The proceeds received by nominee on death is exempt under the Act.
Also you can opt for Pension policies wherein deduction is available for premium paid u/s 80CCC of the Act upto a maximum of Rs. 1.5 lakhs (i.e. including deduction u/s 80C). On vesting date 1/3rd of the corpus is exempt and for the balance 2/3rd you need to buy annuity which is taxable.
The Equity-Linked Saving Scheme (ELSS) is one of the best tax saving investment options in the market. It has the shortest lock-in period i.e. three years. It gets usual tax exemption under 80C of the Act. You can invest through SIP (systematic investment plan) under which you need to invest a fixed sum every month. It is auto-debited from your bank account on a specific date of the month. It is a convenient and affordable investment option.
3.Public Provident Fund
The Public Provident Fund (PPF) is a long-term investment option by the Central Government. In this sum up to INR 150000 gets tax exemption under 80C of the Act. Furthermore, the interest earned and sum received at the end of the maturity is completely tax-free. Public Provident Fund (PPF) provides the investors' returns appx 8% interest rate.
4.National Pension Scheme (NPS)
NPS is one of the few tax saving options that allows exemption up to the amount of INR 1.5 lakhs against investment in Tier 1 option under 80C of the Act. It is a retirement benefit plan and has lock in upto 60 years of an individual. On vesting date, 60% of the corpus is exempt under the Act and balance 40% has to be used for buying annuity which is taxable.
Even if it sounds odd, health insurance does provide tax benefits. As per section 80D of the Act you get to enjoy tax deduction on the premium you pay. So, if you get a health plan for yourself and your parents then you could enjoy tax exemption up to INR 50000.
Saving tax through investment might look difficult, but it is not. These stated options are quite easy for investment and you can save a lot of tax. Make sure, you invest in only those options that suit your income.
Disclaimer: Please note that the income tax provisions are subject to change for time to time. Please consult your tax adviser for further clarifications or visit income tax website www.incometaxindia.gov.in before investment.