Are you looking for ways to reduce your income tax liabilities? Fortunately, India is now full of investment options that can offer benefits like capital growth and more along with tax savings. The tax laws in India often appear very complicated, especially to people who have recently started earning.
Moreover, even a lot of taxpaying veterans continue to wait for the tax filing deadline to invest. And when the filing date is just around the corner, they end up investing their money in the first available option without thoroughly considering their needs and available tax saving investments.
To make it easier for you to make the right investment decision for tax saving, here is a list of 5 of the most popular options-
1. Tax-Saving FD
Fixed Deposits or FDs have been a go-to investment option in India for several decades. Banks now offer FDs with tax saving benefit which is similar to normal FDs but have a lock-in of 5 years. Tax saving FD rates are generally higher as compared to standard FDs.
The investments made in such schemes are eligible for tax deduction under Section 80C, but the interest earned through this 5-year duration is taxable.
2. Public Provident Fund
PPF is a government-backed scheme with a minimum 15-year lock-in period. One of the best tax saving schemes for people looking to build their retirement portfolio, contributions made into the PPF account is eligible for tax deduction under Section 80C. However, unlike FDs, the interest that you earn through your PPF investment is also completely tax-free. And also, the maturity proceeds you receive are exempt from tax.
3. Equity Linked Savings Scheme
ELSS is a type of mutual fund with more than 65% of the investments made in equity markets. These schemes have a lock-in period of 3 years and are very popular for their high capital growth potential.
Out of all the tax-saving schemes in India under section 80C, these have the shortest lock-in period.
4. Health Insurance
Apart from investing money for capital growth, it is also important to invest in your health. To encourage people to invest in health insurance policies, the premiums paid for such policies are eligible for tax deduction under Section 80D.
Prefer purchasing health insurance with tax benefit schemes when you are still young as the policies get expensive as you age.
5. Life Insurance or Term Insurance
Even your life insurance or term insurance policy can help you save taxes. There are several sections such as 80C, 80D, and 10D under which such schemes are eligible for tax deduction as per the IT Act.
Moreover, there are now many different types of insurance products like ULIP which combine insurance with investment. Consider such options if you also want your health insurance investment to earn returns for you.
Planning your taxes like a pro
If you are looking for ways to reduce your tax burden, these are some of the most popular tax-saving investments you can consider. However, before choosing an option like tax saving fixed deposit, PPF, or any other option, ensure that you first thoroughly understand your requirements as not every popular option can be right for you.
Understand how a particular investment works, the benefits it offers, tax savings, etc. to make the right decision. Avoid relying on someone else’s recommendation and prefer your own research. In case of any doubt, you can always consult a tax professional.
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