Investors should always be attentive towards investment possibilities that offer tax savings as well as a tax-free income. Before you select the right tax saver for you, you should certainly ensure that you comprehend how your returns would be taxed along with factors like liquidity, and security.
The initial stages of the financial year are essentially the most ideal time to consider planning your tax-saving investments.
Sections 80C, as well as 80CCC of the Income Tax Act, provide all the information that you might require in planning your tax-saving investments. Now, tax-saving investments offer certain tax deductions. This makes tax-saving investments an integral part of your life. Individuals choose to invest recurrently while keeping in mind the importance of tax-saving investments.
Any smart investor, before investing, would look for the benefits of tax exemption as well as tax-free income. However, it is observed that most investors would procrastinate the process of tax saving. A keener approach to this would be planning your tax-saving investments during the beginning of the financial year.
There exist certain tax saving investment schemes that act as tax-saving instruments and aid the investors in claiming tax relief on their investments. So, before deciding to proceed with a particular tax saving instrument, one must have all the necessary data required to make an informed decision. Let us learn a little about the various beneficial tax saving investment schemes:
Table of Contents
The PPF scheme is the Public Provident Fund scheme. The public provident fund scheme is a prevalent long term tax saving investment scheme. This scheme provides investors with the aspect of tax-saving investments to assure a financial shield after retirement. It is observed that the interest rate of the public provident fund is reset every quarter.
The PPF scheme benefits from an EEE status which is an abbreviation of ‘exempt, exempt and exempt’. This basically means that in the implication of income tax, the payment made to the public provident fund account, the maturity profits, and the interest that is earned are all exempted from tax payment. This makes the public provident fund scheme one of the most beneficial and convenient tax saving investment vehicles.
The NPS scheme of tax-saving investment is a popular scheme among investors and analysts. NPS stands for ‘National Pension Scheme’. The national pension scheme offers tax relief to investors under three different sections. These are explained below:
- Under Income Tax Act section 80C, one can claim the contribution to be relieved from tax payment. However, the maximum amount that can be claimed for exemption is Rs.1.5 lakh.
- Under section 80CCCD (1b), you can proceed to claim an additional deduction of Rs.50, 000.
- In the National Pension Scheme, if it is observed that the employer contributes 10% of the basic income of the individual, then that amount can be claimed to be relieved from tax payment.
The benefits offered by these three sections have made the National Pension Scheme very popular among investors.
- ELSS: The ELSS tax saving scheme is nothing but a diversification of the mutual funds’ scheme. ELSS is an abbreviation of the ‘Equity-Linked Saving Scheme’. The equity-linked saving scheme is a tax saving investment scheme which provides investors with two basic attributes. They are as follows:
- Under section 80C of the Income Tax Act, you can proceed to claim tax relief on your amount. However, there is a restriction on the amount which can be a maximum of Rs.1.5 lakh.
- Investments made with the equity-linked saving scheme entails a lock-in period of 3 years.
The interest rate offered by the equity-linked saving scheme is 15%-18%. This scheme does not offer fixed returns and the returns may vary based on the market performance of the fund.
ULIPs are another popular kind of tax saving investment schemes. ULIP stands for ‘Unit-Linked Insurance Plan’. This tax-saving investment plan offers assistance to investors who seek to achieve tax relief on their investments. In addition to this, the ULIP scheme also offers help to investors in acquiring high returns over longer tenures.
The new and improved ULIP schemes that are introduced by insurance companies come with zero charges for premium allocation as well as zero administration fees, which in turn assists in getting better returns for the investors.
Moreover, the combined advantage of insurance, as well as investment, proves highly favourable for the investors.
This tax-saving investment scheme comes with a lock-in period of 5 years.
Under this scheme, investors are offered a wide range of investment options that they can choose from. This ensures the flexibility of investment.
However, the returns earned under this scheme are not fixed. They depend on the market performance of the funds.
Where should I invest for tax-saving?
The most convenient and beneficial tax-saving vehicles that should be known to all the taxpayers of India are:
- Public Provident Fund (PPF)
- Life Insurance
- Senior Citizens Savings Scheme (SCSS)
- National Pension Scheme (NPS)
- Unit-Linked Saving Scheme (ULIP)
- Equity-Linked Saving Scheme (ELSS)
- National Savings Certificate (NSC)
- The Government of India requires you to pay the income tax. However, the government also allows certain ways by which you can legally save on IT. For instance, you are not required to pay any income tax if your annual earnings are not more than Rs.2.5 lakh.
Irrespective of how much of a taxable income you generate in a year, there exist several deductions and tax saving schemes which are available to all investors and taxpayers. These tax-saving instruments assist you in claiming tax relief on your investments. Also, planning on your tax-saving investments in the early stages of the financial year will unburden you and allow you to make informed investment decisions going forward.