A tax-saving investment is an essential part of your financial plans. You not only save money through such investments but can also grow your wealth gradually. There are two varieties of taxes that you pay – direct tax and indirect tax. The direct tax you pay will depend on your income and the different earnings you get through investments, while the indirect tax is the extra fees on services and goods. One of the ways you can save your direct tax amount is by opting for tax-saving investments.
What are tax-saving investments?
A majority of popular tax-saving investment options come under Section 80C of the Income Tax Act. In the case of health insurance, you can avail tax benefits under Section 80D. Before you select an investment option, you should consider factors like the risks and the returns. These parameters should be in line with your investment objective.
Some of the tax-saving investment options are:
- Insurance:
If you get life insurance for your family, then this plan comes under Section 80C of the Income Tax Act (ITA) and the premiums paid are eligible for a tax deduction. When you opt for the best life insurance policies, your family or beneficiaries will get the best insurance coverage in difficult times. Apart from the insurance coverage, the maturity amount and the premiums on the policy will also come under tax exemption. Affordable life covers like term insurance in India offer the benefit of high coverage, low premiums and attractive tax benefits.
When it comes to health insurance, you can avail tax deductions up to ₹25,000 for health insurance that covers you, your spouse and your dependent children. The limit is ₹50,000 for senior citizens. Taxpayers can also avail additional tax deductions, over and above their deductions, on a health insurance plan that covers their dependent parents.
- Tax-Saver Fixed Deposit:
A fixed deposit scheme is similar to a guaranteed return plan. The lock-in period of the investment is for 5 years. It is an apt investment product for individuals with a low-risk profile who want to save money in an FD and avail tax benefits. You can claim up to ₹1.5 lakhs on taxes with a tax-saving fixed deposit.
- Unit Linked Insurance Plan:
A ULIP is the best insurance-cum-investment product available in India. When you opt for this plan, you can earn returns through investments while getting insurance coverage as well. One of the best features of this policy is that the premiums paid towards the plan as well as the returns earned from it carry tax benefits.
- National Savings Certificate:
This scheme is basically a savings bond scheme which allows small to mid-income investors to invest while also saving under Section 80C. It is an initiative started by the Government of India, and so, it is a safe investment. Just like fixed deposits, they are considered to be low-risk tax saving investment options that will offer great returns on the investment. You can claim a tax deduction of up to ₹1.5 Lakh with this instrument. The interests earned on them also have tax-benefits.
- Public Provident Scheme:
This investment instrument will help you build wealth for your retirement years. The whole fund is eligible for tax exemption. It offers a maturity period of 15 years which can be further extended for 5 years. A tax deduction of up to ₹1.5 lakh can be made through this instrument under Section 80C.
Final Words
The post-pandemic world has reiterated the importance of insurance – health and life. Additionally, wealth creation and guaranteeing a financially secure future is equally important.
The above instruments help you to not only secure and grow your finances but also save taxes. It will be beneficial if you read up on the different products available and make an informed decision. With the learnings of 2020, let us welcome 2021 with financial security and awareness. Good luck!
