Investment Options That Can Help Enhance Tax Savings
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All the taxpayers both salaried and non-salaried must plan their investments in order to enhance their tax saving options. Every investor always looks out for an investment option that will help them save tax and generate a tax-free income. The search for a new investment option must be done in a manner that the investment option offers you an option to generate tax-free income. While investments in a tax-saving investment tool can help you save tax for the current year but in the long run the interest accrued by investing in such investment options are taxed. It is very important to look for an investment option that helps you enhance your tax savings and also help you generate tax-free income.
Investment Options That Can Help Enhance Tax Savings
Here’s a list of some investment options that can help you enhance your tax-savings:
1. Unit-Linked Insurance Plans
Unit-linked insurance plans are a type of life insurance plan that invest part of the premiums paid into different market-linked investment options reducing the risk exposure. Under ULIPs the person can avail the benefits of a life insurance, as a death benefit is provided to the family of the life assured in case of an untimely demise of the life assured. When a person invests in a ULIP, for the initial 5 years ‘lock-in period’ the investor cannot withdraw his/her investment. Returns are not guaranteed under ULIPs as part of the premiums paid are invested in different market-lined investment tools. Proceeds received at the end of the policy tenure are tax-free.
2. Equity Linked Savings Scheme (ELSS)
Equity Linked Savings Scheme is a diversified investment in equity which qualifies for tax exemption under Section 80C of the Income Tax Act, 1961. Even though investing in this type of investment tool attracts 10% of LTCG, this investment option is a good choice because of their long-term consistent performance.
3. Public Provident Fund (PPF)
Public Provident Fund is an investment tool which is mostly opted for because of attractive returns on investments that Public Provident Fund offers. This investment option is very important among investors because this investment option offers guaranteed returns which are tax-free. Currently PPF accounts offer 7.9% interest per annum (the rate of interest may change every quarter). Public Provident Funds are risk-free since there is no exposure to the capital market.
4. Employees’ Provident Fund
Employees’ Provident Fund is another great investment option that helps in generating tax free returns on the investment. This investment option is ideal for salaried people who wish to invest for a longer duration. Employees contribute 12% of the total salary into an Employees’ Provident Fund account to generate a tax-free corpus. Just as the employee contributes towards the account, under EPF the same amount is contributed by the employer towards the EPF account. Only the contribution made by the employee is eligible for tax exemptions under Section 80C of the Income Tax Act.
To Conclude
It is safe to say that every investor must review each and every investment option to invest in them according to their financial goals, budget and risk appetite. All of the above mentioned investment avenues can help a person generate tax-free returns and enhance their tax savings.
Also read - How Do Fixed Deposits Work?
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.
