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Few might have
already started their tax planning from the beginning of a year, i.e. from the
April month itself. However, the majority of people will start to think only at
the year-end. So let us discuss what are the tax saving options, one can utilize
1) Life Insurance-
- a) Endowment or Money Back Plans-These are the one of the oldest ways of
investments used by all Indians. But do remember that these products will
neither give you full life risk coverage of actually in need nor they give
a better return. But at the same time if you are very much happy with the
kind of coverage like Sum Assured or Rs.1, 00,000 to Rs.10, 00,000 or
returns of around 6% then definitely consider this.
- b) ULIP Plans-These are again a combination of
INSURANCE+INVESTMENT product. Currently insurance companies are offering
these products at cheaper than what they used to be earlier. But still the
drawback of such plans are-they will not fulfil your life insurance
needful, tracking of fund performance is very inconvenient and if the fund
is not performing then hard to come out of such plans.
- c) Term Plans-These are the pure life insurance products.
You can buy the actual need of insurance very cheaply. Therefore, instead
of going for above two products this is necessary for all.
2) Public Provident Fund (PPF)–
This is one
of the tax saving heaven for the few who want to get the tax deduction under
Sec.80C while investing and after that exemption on interest earned as well as
the maturity amount. From this financial year limit of yearly investment raised
to Rs.1, 50,000. However, do remember that period of PPF is 15 years and
liquidity is not so easy. Other than that if, your financial goal matches in
this period, then it is best to consider the debt portion of your portfolio
towards this investment.
3) ELSS Funds–
These are
mutual funds specifically meant for tax saving purpose. Do remember that there
is a lock-in period of 3 years attached with such funds. Also, never be in a
wrong belief that if you invest in monthly SIP then you can exit after 3 years.
However, each monthly SIP is considered as new investment. Therefore, each
monthly SIP needs to be complete 3 years. You can avail tax benefit under
Sec.80 C of Income Tax.
Considering
the equity nature of this type of investment, it is wrong to think that after 3
years you can come out easily with positive returns. Consider your time horizon
of staying with these funds as more than 7+ years and invest. Otherwise, you
may end up in negative earnings.
4) Rajiv Gandhi Equity Saving Scheme (RGESS)–
This is one
more type of equity investment where the only new entrant into equity will be
benefited and whose income is less than Rs.10 lakh a year. You can claim
deduction under Sec.80 CCG. The maximum investable amount is Rs.50,000. You can
claim 50% of the invested amount. This scheme allows you to invest in
particular stocks, ETFs or Mutual Funds.
5) Employee Provident Fund (EPF)–
This is one
more type of indirect saving scheme. The employer usually deducts 12% of your
salary towards this scheme. Your contribution is available for deduction under
Sec.80 C. Max Rs.1.5 Lakh
Also, if you
fail to contribute then you can contribute to this scheme more than 12%, which
is called Voluntary Provident Fund (VPS), by doing so you can increase your tax
deduction option also.
6) Senior Citizen Savings Scheme (SCSS)–
This scheme
does not apply to all as it is meant for senior citizens only. One can invest
up to Rs.15 Lakh only. Detailed features of this scheme are available with India
Post. You can avail tax benefit under Sec.80 C. However, interest
earned from, this is considered as taxable income. In addition, you can read
further information from below link.
7) National saving Certificate (NSC) or Bank FDs–
Again, these
two forms of savings are very much popular in India
8) Health Insurance–
This one is
for of safety major yourself by having health insurance and along with that,
you can avail tax benefit under Sec.80 D. If you buy for yourself, spouse or
children, then up to Rs.25, 000 can be claimed under this rule. Also, if you
buy health insurance for your parents (whether dependent or not) then
additional Rs.25, 000 deduction is available. However, parents are senior
citizens, and then the limit is up to Rs.30, 000. So overall, one can save a
maximum of Rs.55, 000 under Sec.80 D. You can choose plans by reading a few of
my earlier posts.
9) Home Loan–
Home loan is one
more option for those who want to save tax. But what if your interest payout is
more harming you than the available tax benefit? Hence, do take care of
entering into this option. As this is a loan, but not an investment. There are
two types of tax benefits if you opted for home loan and it is self-occupied.
- Under
Sec. 80C whatever principal you pay towards loan is eligible for
deduction. (Do remember that this exemption is only for residential
property, only for the purchase and construction of the house, but not for
renovation or repair, also if you sell the property within 5 years of
availing tax benefits then the benefits availed is reversed).
- Under
Sec. 24 you can avail the interest amount whatever you pay towards this
loan. The limit is Rs.2 lakh for one self-occupied property.
However, if it is not self-occupied property, then there is no such
limit.
