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Saving taxes is on top of everyone’s wishlist. After all, no one wants to lose a chunk of their income to pay taxes.
Here’s the thing — tax planning is no rocket science if executed well. Several avenues can help you to safeguard a sizeable amount from falling prey to additional taxes. Follow along to learn more:
Consider smart investment options
You don’t need a vast amount of money to benefit from tax benefits linked to investments. There are several options available in the market that allow you to create a good enough corpus while saving on taxes. Some of the popular options to try include:
National Saving Certificates
With a minimum investment amount of INR 100, the National Saving Certificate is a great option for investors, especially those who are starting. Investments in NSC up to INR 1.5 lakh are eligible for tax rebates under Section 80C of the Income Tax Act. Any interest you earn on NSC also gets added to the initial investment corpus and qualifies for tax relief. The only catch is the lock-in period that may restrict your access to liquid cash any time you want.
Provident Funds
One of the most common options favored by investors of all types of risk profiles is Public Provident Fund. It is excellent at generating a long-term return and also offers tax relief.
The maximum amount you can invest toward PPF in a year is INR 1.5 lakh and the entire amount can be claimed as a deduction under Section 80C. The interest you earn from PPF deposits is also tax-free and since there is no wealth tax levied on PPF accounts, you stand to gain more.
Mutual funds
Investing in Equity Linked Savings Schemes or ELSS mutual funds can help you claim a deduction under Section 80C, up to INR 1.5 lakhs. Plus, such schemes also offer a great opportunity for capital appreciation.
Avail of a home loan
If you want to purchase a house, apply for a home loan as it is also a tax-saving instrument.
The principal up to INR 1 lakh is eligible for tax relief under Section 80C. The annual interest up to INR 1.5 lakh is eligible for tax rebate under Section 24.
Apply for health insurance
Section 80D of the Income Tax Act can come to your rescue and help save on taxes, provided you pay timely premiums for your health insurance policy. The deductions can be claimed over and above the tax rebates offered by Section 80C.
Moreover, you can claim tax relief not only for health insurance for yourself but even when you get it for your spouse, parents, or dependant children.
The maximum deduction allowed under Section 80D is capped at INR 25,000 in a financial year. If you are a senior citizen, the limit is INR 50,000.
Start investing in ULIPs
Unit Linked Insurance Plans have emerged as a top choice for investors who want to reduce their tax burden.
You can get a tax deduction of up to INR 1.5 lakh on the policy premium under sections 10D and 80C. Since the lock-in of ULIPs is for five years, you get to enjoy the tax benefits for 5 years continuously and even more if you continue paying.
The maturity amount is also not subject to any additional taxes. In the event of the death of the policyholder, the beneficiaries are eligible to receive the payout without paying any tax on the same.
Conclusion
Reducing your tax burden using legitimate means is always a smart move to create a solid corpus.
But before you explore any option, make sure to assess the risk factor, lock-in period, liquidity, and returns to ensure that the investment aligns with your risk appetite and expectations from the investment. It is foolish to sign up for a tax-saver product that doesn’t cater to your requirements. If you have difficulty picking which is the right ELSS plan for you, get in touch with the experts at Moneyfront right away and we will help you make the right choice.
