During every financial year, most taxpayers file their taxes at the last moment. Not many understand the importance of saving taxes and investing early. Planning your tax-saving investments enables you to carefully analyse the options at your disposal and select the one that suits you the best. It is important to understand that early investing will yield more benefits while helping you save taxes.
Below are some of the tax-saving investment options which you should consider:
Invest in a health insurance policy
Investing in a health insurance policy is beneficial to individuals because it covers all your medical expenses in case of any medical emergency. With multiple insurance policies available in the market, you can choose the one that best suits your requirements. Some of the health insurance policies include individual health insurance, family health insurance, senior citizen health insurance, etc. You are eligible for tax benefits against the premiums paid on your insurance policy. As per Section 80D of the Indian Income Tax Act, the premiums paid towards health insurance are tax-deductible. The maximum limit for deduction depends upon the age of the insured and the composition and age of the members.
You can calculate your premium using the health insurance calculator available on the internet.
Tax saving benefits under 80C
There are various tax saving investment options under Section 80C such as ELSS funds, PPF, Fixed Deposit, National Saving Scheme, Sukanya Samriddhi Yojana, ULIP, etc. Let’s understand each of the tax-saving options separately.
- ELSS Funds (Equity Linked Saving Scheme) - Investing in this equity mutual funds should be done keeping in mind the long-term perspective. A staggered monthly investing will not only help you save taxes but will serve as an effective investment tool too. ELSS are subjected to a lock-in period of 3 years and eligible for a tax deduction of up to Rs.1.5 lakhs.
- PPF (Public Provident Fund) – An individual can open a PPF account in order to avail of the tax benefits under 80C. A PPF account can be opened either with a post office or a nationalised bank. The interest rate of PPF is 8%. Benefits such as extended tenure period, low investment options, various modes of deposit, etc. are offered with the PPF. The risk factor for investing in PPF is low as it is backed up by the Indian government.
- Tax Saving Fixed Deposit – Tax-saving fixed deposits are an efficient and easy instrument to save taxes. Tax saving FDs have a lock-in period of 5 years and are eligible for deductions of up to Rs.1.5 lakhs. These fixed deposits have an assured fixed rate of return, making them a lucrative investment option.
- National Savings Certificate (NSC) – Similar to PPF, NSC is a scheme issued by the Indian government and has a fixed interest of 8%. This scheme was introduced with the aim of helping small and medium investors save regularly while saving taxes. There is no upper limit, but only investments of up to Rs 1.5 lakhs are eligible for deductions.
- SSY (Sukanya Samriddhi Yojana) – This scheme was started by the Indian government in order to secure the future of a girl child. You can start an SSY scheme in the post offices and public as well as private banks. Under section 80C, this scheme is eligible for deductions with a maximum limit of Rs.1.5 lakhs. However, as the name suggests, the scheme is only available for a girl child.
- ULIP (Unit Linked Insurance Plan) – ULIP is a combination of investment and insurance. When you invest in a ULIP, the insurance company invests a small part of the premium in life insurance and the rest of the money is invested just like a mutual fund. Under section 80C or 80CCC (pension), you can claim a deduction of up to Rs.1.5 Lakhs.
Other investment options
Other investment options in which you can save your tax includes voluntary contribution to National Pension Scheme (Section 80CCD), Rajiv Gandhi Equity Savings Scheme (Section 80CCG), Interest paid on the repayment of loan taken to pursue higher studies (Section 80E), Interest earned on savings bank account (Section 80T), Rent paid for residential use (Section 80GG) etc. The maximum amount eligible for deduction will vary based on the respective section and other clauses mentioned in the Income Tax Act.
While selecting the investment scheme, you also need to consider the taxability on the income earned from such investments. So, rather than investing last minute, you can plan your taxes early and not wait until March.