Come January and most people are looking for ways to save tax. One shouldn’t wait till the year-end to start tax planning and should ideally begin at the start of the financial year. Whether you fall into the tax bracket or not, it is always handy to know about the different tax saving options that you can invest. Besides saving tax, these instruments can also help to save money and grow wealth over the long term.
Tax saving options are available under different sections of the Indian Income Tax.
Here are some of the easiest tax saving options:
Fixed deposits are one of the easiest saving options. It is easy to open and give a fixed interest rate. However, not all fixed deposits help in saving tax.
Tax Saving Fixed Deposit (FD) is a type of fixed deposits that helps to save tax under the section 80C of the Indian Income Tax. Individuals can save up to Rs.1.5 lakh per year through tax-saving deposits. While regular fixed deposits are available for different time horizons such as 1 year, 2 years and 3 years etc, tax-saving fixed deposits have a duration of five years.
The interest rates of these fixed deposits are revised from time to time by the respective banks. Customers can opt for periodic interest payouts i.e. quarterly interest payout and monthly interest payout. This ensures liquidity during the five years.
Equity-Linked Savings Scheme (ELSS) is a type of mutual fund that allows investors to save tax under section 80C. ELSS funds invest predominately in equities. Unlike tax-saving FDs, tax saving mutual funds don’t give a fixed interest rate. The returns of these mutual funds are linked to the markets. Hence, it can be volatile in the short run. Due to its volatile nature, it may not be an ideal tax saving option for everyone.
ELSS funds have the lowest lock-in period of three years. Investors can redeem their investment after three years. However, it is not compulsory to redeem. Individuals can also invest more than Rs.1.5 lakh in a financial year. However, the invested amount beyond Rs.1.5 lakh will not be considered for tax saving purposes but the invested amount will continue to grow and earn returns.
One can also invest in ELSS funds through systematic investment plan (SIP) where a certain sum of money is invested every month in the tax-saving fund of your choice. With SIP, you don’t have to wait for the last moment to do your tax planning.
Public Provident Fund (PPF) is another popular tax saving instrument under section 80C of the Indian Income Tax. PPF has a maturity period of 15 years. Individuals can redeem their investment after the seventh year under certain conditions. After maturity, PPF can be extended in blocks of five years.
PPF also gives a fixed rate of interest. The rate of interest is revised by the Ministry of Finance quarterly.
What makes PPF a favourite among individuals is its Exempt-Exempt-Exempt status. First, the investment qualifies for the deduction, second, the interest earned on the investment is not taxed, and thirdly, the income generated from the investment is tax-free during withdrawal.
One can open a PPF online through their bank’s net banking or mobile banking platform.
National Saving Certificate is a tax saving option with two maturity periods of five years and ten years. Investments made under NSC is also eligible for tax saving under section 80C. Investors can make minimum investment for Rs.1,000, in multiples of Rs.100. It does not have any maximum investment limit, but investments of up to Rs.1.5 lakhs is considered for a tax break under the section 80C of the Income Tax Act.
NSC also gives a fixed interest rate that is compounded annually that is payable at maturity. The National saving Certificate is meant for individuals and Hindu Undivided Families (HUFs) and trusts cannot take exposure in NSC.
You can visit the nearest post office to start investing in the National Saving Certificate.
Having adequate life insurance cover is a must for everyone. It makes sure that family members and dependents continue to live without any financial upheaval.
While tax benefits should not be a key driver for taking an insurance cover, policyholders can claim a tax deduction on account of premium paid towards life insurance for self, spouse or children under the section 80C.
The returns earned from life insurance policies such as Unit Linked Insurance Plans (ULIPs) are tax-free subject to conditions of Section 10(10D) of the Income Tax Act (1961).
There are various tax savings options under section 80C of the Income Tax Act. Investors can invest up to Rs.1.5 lakh in a financial year in these tax saving options.Tags: elss, national saving certificate, ppf, tax saving options, save tax, save tax under section 80C, tax saving FD
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