The majority of Indians view filing of income tax return as tedious. To be sure, no one likes tax cuts from salaries and other earnings. Moreover, if you are saving to fulfil your long-term goals, then income tax comes as a hindrance, especially if you fall under a tax bracket that sees you paying an elevated amount of tax.
In view of all this, the Income Tax Act of 1961 has allowed deductions in taxable income, for specific investments made under various Sections of Chapter VIA of Income Tax Act (Section 80C, 80CCC, 80CCD etc.). If you know of any tax saving scheme, it is sensible to avail of it, while it may benefit you in other ways at the same time. Investments that help you to grow your wealth and save your tax are the need of the hour, especially if you have future financial requirements to plan for. You may be interested to know about some of these as it's never too late to save tax and invest.
Public Provident Fund (PPF)
While investing in products, stability and safety may be the main words that come to mind. If you are a careful investor who wishes for a practically risk-free form of investment, then you are best off with a public provident fund (PPF). This is one of the oldest and trustworthy tax saving schemes in India and can be availed of in any bank or post office. The scheme has the government’s backing, so reliability and returns on investment are guaranteed. Here are the features and benefits you get with PPF investment:
- PPF has no tax liability at all stages of investment. This means that you don’t pay tax on the deposit, interest or maturity amounts.
- The current interest rate of PPF is 7.1%,
- You can begin your investment with as little as Rs. 500 for financial year.
National Pension Scheme (NPS)
This is a tax saving scheme that is a market-related savings scheme, aimed at retirement. The National Pension Scheme combines the highlights of other retirement plans like EPF with market portfolios. It is possible to link your income with your NPS in order to grow your investment, aimed at forming a corpus for retirement. Whatever sums you invest with NPS are used to purchase market securities like debt, equity, and the like. The plan will mature as soon as you reach the age of 60. A tax deduction is available when you invest in NPS, under Section 80CCD of the Income Tax Act of 1961. The benefits of NPS include:
- Investments in securities chosen by you, subject to the conditions specified
- The amount invested is chosen by you
- If you have a financial emergency, you may withdraw a part of your NPS investment subject to lock-in period. This is true even in the case where you have to fulfil a life goal. For instance, you can withdraw up to 40% of your investment to fund a medical emergency, for the education of a child, etc.
Equity-Linked Savings Scheme (ELSS)
This kind of investment helps you save tax and is a form of a mutual fund. A major part of the portfolio constitutes equity. In an equity-linked savings scheme, majority of funds are invested in equity securities and stocks. As the returns pertaining to ELSS are related to the performance of the stock markets, there is more risk in investment of this kind of scheme. However, high risk may mean higher returns than other kinds of investments. This scheme is helpful for long-term gains, as ultimately, holding equity for the long haul may help you in earning significant returns. Here are some benefits of ELSS to consider:
- Under Section 80C of the Income tax Act of 1961, you are eligible for a tax deduction amounting up to Rs. 1.5 lakh based on the amount of your investment, subject to conditions stated therein.
- You can begin your investment with as little as Rs. 500.
- There is no higher limit on the invested amount
Unit Linked Insurance Plan (ULIP)
A popular tax saving scheme comes in the form of a ULIP. This is a form of life insurance that gives you coverage for life, and also enables you to invest in the stock market to help grow your wealth. So, you get insurance, plus investment, in a single product. You can avail a deduction under Section 80C of the Income Tax Act 1961, and deductions can be made up to Rs. 1.5 lakh, subject to provisions stated therein. If policy is satisfying criteria mentioned in sec 10(10D) of the Income Tax Act 1961, proceeds received under policy are tax free in the hands of recipient.
This is a sought-after method to save tax. Life insurance policies offer you life coverage as you pay regular premiums to maintain the validity of the same. Different kinds of plans exist, depending on the purpose they serve. For instance, a term insurance plan covers your life for a particular tenure. In the event of your unfortunate demise during the tenure, your nominee gets a death benefit as per policy terms & conditions. In case you survive the tenure, there may be no benefit. However, you do get tax benefits on the premiums paid, and in case the sum assured is paid out on death, it is not taxed subject to the conditions mentioned under section 10(10D) of the Income Tax Act, 1961.
Whether you invest in PPF, NPS, or ELSS, tax benefit can help you to save money while you earn more money.
Income tax calculator
You may also want to use the Income tax calculator which is available on the Income tax portal to determine the most feasible tax calculation.
Furthermore, there are other tax saving schemes that you may explore by buying certain products like insurance. For instance, life insurance policies give you coverage for your life when you pay regular premiums.