Best Tax Saving Investment Options
How to save income tax? This is one of the prime concerns of many people in the country. If an individual has a health insurance policy, they easily become eligible for tax benefits. However, what if one wants to invest in other options to save tax? What are the other tax-saving investment options available? Well, we have an answer!
How to Save Taxes by Investing Your Money?
Health insurance policyholders would know tax benefits for the premium paid under Section 80D of the Income Tax Act, 1961 is one of the key ways to save tax. However, there are also ways present that easily help one make tax-saving investments early on or through the year rather than wait till the last minute.
Some of the major tax saving options are:
1. Under Section 80CC
The most popular tax-saving investment options available to individuals and HUFs in India are under Section 80C of the Income Tax Act. Please note that Section 80C includes different investments and expenses that one can claim deductions on – up to the limit of Rs. 1.5 lakh in a financial year. These investments and expenses include:
i) Tax-saving FDs
Tax-saving FDs are similar to regular fixed deposits. However, they come with a lock-in period of 5 years and tax break under Section 80C on investments of up to Rs 1.5 lakh. Eligible for Resident Indian individuals, tax-saving FDs have interest rates for different banks ranging from 5.5% to 7.75%. While the minimum investment limit is Rs. 1,000, the interest earned is taxable.
ii) PPF
PPF or Public Provident Fund is one of the most popular tax-saving instruments. These are long term investments backed by the government of India. Please note that any deposit made in a PPF account is eligible for tax deductions under Section 80C. Eligible for any Resident Indian individual, whether salaried and non-salaried, PPF accounts have a lock-in period of 15 years. Further extension by 5 years is allowed. Also, partial withdrawals are allowed after 7 years. While the current interest rate is 7.1% p.a, the interest earned is tax-free. The minimum and maximum investment limit is Rs. 500 and Rs. 1.5 Lakh respectively. remember, a HUF cannot open a PPF account.
iii) EPF
EPF or Employee Provident Fund is a retirement benefits scheme available for salaried employees. The EPF is the 12% of basic salary + DA, deducted by an employer and deposited in the EPF or other recognized provident funds. Available for employees with a basic salary greater than Rs.15,000 per month, EPF can be withdrawn by an employee after 2 months of leaving the job and not taking employment within 2 months with an employer covered by the PF Act. Please note that the interest rate on the EPF is 8.5%. While the employer and employee contribute a minimum of 12% of Basic Pay + D.A, the entire PF balance, including interest is tax-free, if withdrawn after 5 years of continuous service.
iv) NPS
NPS or National Pension Scheme was started by the Indian Government. The concept was brought in to allow the unorganised sector and working people to have a pension after retirement. See that any Indian citizen between the age of 18 years and 60 years can open an NPS account. However, remember that only partial withdrawals are allowed after 15 years (under special conditions). While investments of up to Rs 1.5 Lakh can be used for tax deductions, there is no limit on maximum contribution. The returns rate on the NPS lies between 12% – 14% and the employer contributions are tax-free.
v) ULIP
ULIPs or Unit-linked Insurance Plans are insurance and investment combined. While a part of the money is used to provide insurance, the rest is invested in stock markets. Please note that investments of up to Rs 1.5 Lakh in ULIPs are eligible for tax breaks under Section 80C. A person can buy ULIP for themself or spouse or child. While the interest rate varies, the return rate lies between 12% – 14%. There is no limit on maximum contribution and investment, withdrawals & maturity amount are tax-free.
2. Other Than Section 80C
The options are :
i) Under Section 80EE, claim deduction up to Rs. 50,000 on home loan interest.
ii) Home loan’s principal portion can be claimed under Section 80C up to Rs 1.5 Lakh. The interest portion can be claimed as a deduction from income from house property.
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Conclusion
Now that you are aware of the tax saving options, make sure you begin investing in the first quarter of the financial year. Doing so will not burden you at the year-end. Also, you will be able to make informed investment decisions.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.
