Investments To Enhance Tax Savings

Every investor is always on the lookout for fresh investment opportunities that can help them save money on taxes and produce revenue that is tax-free. The income tax legislation allows a taxpayer to deduct certain investments, savings, and expenditures made during a given fiscal year. Hence, searching for fresh investment opportunities should be done so that they provide you with opportunities to produce tax-free revenue. 

Investments To Enhance Tax Savings

Here are some of the investment opportunities that can be considered to save on taxes.

• Public Provident Fund (PPF)

For decades, the public provident fund has been one of the most appealing investment options, with high returns on investment. It has been one of the most popular tax-saving products for investors since its introduction. The instrument's popularity stems from the fact that it provides guaranteed returns that are also tax-free. Aside from the tax-free income, another benefit of investing in a PPF account is that the investment can be extended multiple times in 5-year blocks beyond the initial 15-year period. Investing in this instrument is advantageous because the returns are tax-free, and the rate of interest offered is competitive with other investment instruments. Moreover, the investment can be started with as little as Rs. 500, and the entire investment is risk-free because there is no exposure to the capital market.

• Unit Linked Insurance Plans (ULIPs)

Unit-linked insurance plans are one of the most appealing investment options since they provide a double advantage. This investment product provides risk protection as well as favourable returns on investment. The money invested in ULIPs is spread over a variety of market-linked products, decreasing risk exposure. Similarly, the investment is made for a longer period of time, usually between 15 and 20 years. The money is locked in for the first five years, and the investor is unable to extract it. ULIPs have a strong chance of performing well, but because the investments are connected to the stock market, they cannot be guaranteed. Tax-free earnings are collected at the end of the term or after 5 years. ULIPs are a good option for investors with a high-risk appetite.

• Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana is a project by Government of India (GOI) aimed at financially strengthening girl children. This scheme was created specifically for the girl kid, and only the girl child's parents are entitled to invest. Parents are eligible for the tax advantage under the scheme. Parents can register a Sukanya Samriddhi account in their daughter's name as part of the initiative. Each parent can open a maximum of two Sukanya Samriddhi Yojana accounts for two girl children. This account must be started in the name of a girl kid at any point after her birth until she turns ten. The account can be started with a minimum deposit of Rs 1000 and a maximum deposit of Rs 1.5 Lakhs per year. The Sukanya Samriddhi account is active for a period of 21 years. The entire amount of investment and maturity returns earned is fully tax-free.

• Equity Linked Savings Schemes (ELSS) 

This is a diversified stock investment that qualifies for a tax deduction under Section 80C of the Income Tax Act. Investing in this instrument, despite the 10% LTCG, is preferable because of its long-term stable performance. Diversifying one's investment across several ELSS schemes can also help to reduce risk.

Endnotes

Taxpayers should be aware of the laws that allow them to save money on their taxes; however, their goal of tax savings should not be achieved at the expense of their financial well-being. For example, because there are tax benefits to be claimed, one should not take out a home loan. Those who require property and take out a mortgage can instead look into ways to lessen their loan repayment load through tax incentives. So, wherever possible, you should take advantage of any tax deductions to decrease your tax liability.

Also read: Beginners Guide to Mutual Funds

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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.