Tax saving is an important part of your budget planning. If done in a smart way, you can not only save tax but also invest the money that will help you achieve your long-term goals. Many people take this aspect leniently and end up not receiving the benefits of good tax saving options.
Many of us try to save taxes, but not everyone succeeds, it is due to a lack of understanding and problems in finding the perfect tax-saving option that suits your needs. The perfect time to initiate your plans is, of course, at the beginning of the financial year. A smart move would be to not treat this just as a tax-saving option, but also as an investment plan. Let us have a look at some of the smart tax-saving options.
Unit Linked Insurance Plan (ULIP)
A ULIP is one of the most used tax-saving options in India. It can provide the benefits of both a life cover and an option of investments if you have long-term goals.
The life insurance policy part of the plan falls under Section 80C of the Income Tax Act 1961. Under this Section, you can save up to Rs. 1.5 lakh annually. Also, income after the maturity of the plan is tax-free provided the premium paid is not more than 10% of the sum assured.
One of its benefits is that it allows you to invest in equity or debt as per your choice. Considering its flexible nature, a ULIP plan is one of the most sought-after tax saving options in India.
- ELSS ELSS schemes are also known as tax-saving mutual funds schemes. These have a lock-in period of 3 years, which is the least. Hence, it is one of the most desired schemes to save taxes.
ELSS schemes also eligible for tax deductions under Section 80C. Since most of the investments done under this scheme are in equities, it makes it a high-risk investment. ELSS funds act as a tax-saving option and a high return on investment option at the same time, making it one of the most used tax-saving options.
- Fixed Deposits There are many tax saver fixed deposits that can be used to save tax under Section 80C of the Income Tax Act 1961. These fixed deposits have a lock-in period of 5 years.
- Public Provident Fund (PPF) This account is one of the safest and widely used tax-saving options in India, as it falls under the tax-exempt option. PPF is a safe option as it provides a guaranteed rate of interest. You can open a PPF account at your post office. Deductions can be claimed under Section 80C of the Income Tax Act, which is up to Rs. 1.5 lakh annually.
- Life Insurance Policies Life insurance policies can be one of the most logical options you can use to save taxes, as these policies secure your family’s financial needs despite your absence.
Life insurance premiums paid under this plan are also deductible under Section 80C of the Income Tax Act.
- National Savings Certificate (NSC)
It is a saving bond scheme that provides a sovereign guarantee. Interests earned on NSC are also deductible under Section 80C. Since they provide a sovereign guarantee, the returns are also guaranteed. NSC certificates can be brought if you have a savings account in a bank.
Above are some of the ways that a person can save on taxes. Understanding the perfect time to start tax saving can be crucial. Always remember that tax saving should not be the only focus. You must also think of it as an investment option.
