Source: Times Now News
Saving money is much more important than earning money, and that can be achieved only through proper tax planning. Income tax provisions allow individuals to save taxes by making investments in specific instruments. Under Section 80C of Income Tax Act 1961, once can save up to Rs 46,350 (for 30 per cent tax slab including cess) in a particular financial year by investing Rs 1.5 lakh.
However, to take the benefit of this provisions, one should know the available options where he can invest to avail tax benefit so that he can plan his investment properly and save is hard-earned money. Here are 10 options where you can invest Rs 1.5 lakh every year to save tax:
1) Bank Fixed Deposits (FD)
Tax-saving fixed deposits come with a lock-in period of 5 years and interest earned from these FD are taxable. One can buy these FDs from any public or private sector bank. Premature withdrawal and loan against these FD’s are not allowed.
2) Public Provident Fund (PPF)
PPF is one of the most popular saving instrument in India, which allows tax saving under Section 80C. PPF comes under EEE (Exempt-Exempt-Exempt) category, which means the amount you invest, interest earned from these instruments and the maturity proceeds, all are exempt from tax. PPF also offers better returns than fixed deposits. However, the lock-in period in PPF is the maximum at 15 years. But one can do partial withdrawal or take loans from his PPF account.
3) Life Insurance
The amount of premium you pay every year for the life insurance bought for you, your spouse and children also qualify for tax deduction under Section 80 C. The maturity proceeds of life insurance are also exempt from tax. However, traditional life insurance policies offer very low return and also returns are not guaranteed. One can consider ULIPs or Unit Linked Insurance Plans for better returns, protection and tax savings.
4) Equity Linked Savings Scheme (ELSS)
Equity Linked Savings Scheme has maximum return potential among all the available tax saving instruments as they invest in equities. The lock-in period in ELSS is also the minimum at 3 years. ELSS also fall in the EEE category and can offer astoundingly high returns over the long term under favourable market conditions. Personal finance experts suggest investing in ELSS for long-term wealth creation. As ELSS funds invest in equity and equity-linked instruments, its returns are not fixed and can vary widely depending on market conditions.
5) National Savings Certificates (NSC)
National Savings Certificates are offered by the Government of India and come with a lock-in period of 5-years. This instrument offers a guaranteed return but returns are taxable. One can purchase NSC from post offices. Currently, the interest rate offered on NSC is 7.8 per cent according to India Post website.
6) Employees Provident Fund (EPF)
EPF is a compulsory retirement saving scheme for salaried individuals. Every month 12 per cent of your salary (Basic+ DA) is deducted by the employer and deposited with EPFO and an equal amount of contribution is also made by the employer. However, you will get tax benefit only on the contribution made by you. Employer’s contribution does not qualify for tax benefit for you. Your contribution up to a maximum limit of Rs 1.5 lakh every year will qualify for tax deduction. EPF also fall under EEE category. Interest rate of EPF is decided every year by the EPFO.
7) National Pension System (NPS)
NPS was launched by the Government of India with an aim to provide retirement income to all citizens. One can invest up to Rs 2 lakh (Rs 1.5 lakh under Section 80C and Rs 50,000 under Section 80CCD (1B))every year in his NPS account to claim tax benefit. Returns from NPS are market-linked and depend upon the choice of funds (debt, equity, government bond etc.). Annuity income received from NPS will be taxable. On maturity, lump sum withdrawal up to 40 per cent is tax exempt.
Also read: How to save money while owning a house
8) Senior Citizen Saving Scheme (SCSS)
The Senior Citizen Savings Scheme, which comes under the Post Office Savings Schemes, is preferably the most effective tax savings scheme for senior citizens. The maturity period of this scheme if 5 years with a provision of 3-year extension if needed. An individual aged above 60 years can open this account. But for those who have opted for voluntary retirement scheme (VRS) at the age of 55 to 60 years can also open this account. Currently, the interest rate provided on SCSS account is 8.4 per cent per annum. However, returns from this account are taxable.
9) Capital repayment on home loan
If you have taken a home loan then the amount you pay every year towards repayment of capital of the home loan qualify for tax deduction under Section 80 C with an upper limit of Rs 1.5 lakh.
10) Tuition fee for children
One can also claim tuition fees paid for up to two children for their education for tax deduction under Section 80C.