Tax planning is something which most of us procrastinate. We only start planning when the financial year is coming to an end and accountants are busy fixing up everyone’s books. However, last minute rushing is not a sensible decision if you want to save money from taxes. To invest your money in tax-saving instruments during the early quarters of the financial year is a smarter approach. The early start also gives you enough time to rectify any mistakes you might be doing in terms of investments.
Kratika was in the same dilemma. She was wondering where to invest her money for tax savings and so she called her brother Kartik for help. Being an elder brother Kartik came up with a list of the best tax-saving investment options. As per Section 80C of the Income Tax Act, the deduction you make towards these investments is tax-deductible.
Let’s have a look at them:
While life insurance is not a pure tax-saving option, but with the immense financial protection it offers to the policy holder, it is an option that everyone should have. Apart from cushioning you from financial burden of emergencies, life insurance premiums are tax-deductible, under Section 80C. The upper limit for this deduction is ₹1.5 lakh. There are multiple policies available in the market: term insurance, ULIPs and endowment plans.
Apart from this, the lump sum amount that the beneficiaries receive is not taxable, as per section 10(10D). For a pension plan, the 1/3rd maturity amount received as lump sum is not taxable. The rest which is received as annuity is taxable.
While health insurance policies don’t offer perky returns like the other policies, the extent of coverage provided by such policies is worth the mention here. With policies, you enjoy a tax deduction on the premium amount of the plan, as per section 80D. The upper limit for this deduction is ₹15,000 and can be extended up to ₹20,000 for senior citizens. When combined with a health plan for senior members of the family, an individual plan can save up till ₹35,000 from their taxable income. Please note that section 80D is not applicable to the group health insurance plan provided by employers.
National Pension scheme
With NPS, the investor has the rare opportunity to surpass the Rs 1 lakh limit of tax deduction set by section 80C. Under NPS, the percentage of your basic salary contributed by your employer towards NPS is exempted from tax. However, the contribution towards NPS will still come under section 80C, and thus, will abide by Rs 1 lakh limit.
Public Provident Fund
Issued by the Central Government, PPF is a long term saving scheme with unique benefits. The contributions you make towards PPF scheme are tax-deductible with an upper limit of ₹70,000. Additionally, the interest earned and received at the maturity is absolutely tax free. Being a government scheme, PPF also assures the investor an 8% rate of return on a guaranteed basis. However, the only thing putting people off is its lock-in period of 15 years, making it non-conducive for short term planning.
Since you are now aware of these multiple investment options, start planning at the earliest and put your money where it can help you to save taxes.