Investing in the best tax saving investments is the key to ensuring a healthy financial future. With the government constantly trying to reduce taxes and make life easier, it’s vital to know the best way to save on your tax bills. While there are many options out there, here are five to consider.
Public Provident Fund
Investing in the Public Provident Fund (PPF) can help you build a retirement corpus. It is a government-backed investment scheme that is considered to be one of the best tax saving investment options in India. Besides offering tax-free returns, it also guarantees capital safety.
PPF deposits are eligible for tax deductions under Section 80C of the Income Tax Act. Interest earned from these deposits is also tax free.
Public Provident Fund can be opened at selected nationalised and private banks. You can also open an account online. To do so, you will need to complete an application form and link your 12-digit Aadhaar number. You will then need to provide your personal and nomination details.
A lock-in period of 15 years is imposed on your PPF account. This period helps you to establish a habit of regular saving. If you withdraw before the lock-in period, you will forfeit your investment. You can extend this period by five years.
ELSS (Employee Linked Securities Fund) is a tax saving scheme that provides a 30% tax deduction under the Income Tax Act. This is a unique opportunity to invest in equity instruments and earn a great return on your money. Aside from the tax deduction, the ELSS scheme also allows you to create wealth in the long term.
Before investing in ELSS funds, you should be aware of the financial parameters to help you make an informed decision. The most important parameter is to know exactly what you want to achieve with your investments.
In general, ELSS funds aim to achieve long term capital appreciation in a portfolio of listed securities. To do this, a team of investment experts and analysts pick stocks based on a number of factors. Some of the factors include company size, industry sector and market capitalisation.
ELSS funds also provide tax benefits under Section 80C. Investors who invest in ELSS schemes can save up to Rs. 46800 in a financial year.
Unit Linked Insurance Plans
ULIPs (Unit Linked Insurance Plans) are an ideal financial instrument for both investment and life coverage. The features of these policies help investors secure a stable return over the long term. However, it is important to double check the tax benefits of any investment product before you buy it.
This is because ULIPs are usually sold as an investment product that offers tax benefits. But the benefits are limited to only 10% of the sum assured. And even then, it is a good idea to check with a financial advisor for more details.
These plans can be used for education expenses, child care, retirement planning, and other long-term objectives. They also give investors peace of mind. However, their performance can be mixed. And they aren’t as pure an investment product as a Mutual Fund.
A ULIP is a type of insurance policy that allows the insured to earn market-linked returns. It also allows them to change the allocation of their funds to meet their risk tolerance level.
National Savings Certificate
Investing in National Savings Certificate offers a low-risk fixed income product that is backed by the Government of India. The scheme provides interest at a fixed rate of 6.8% per annum.
NSCs can be purchased from any post office throughout India. The government periodically revises the interest rate. The interest earned is also eligible for tax deduction under Section 80C of the Income Tax Act.
NSCs are available in a variety of denominations. There is no maximum purchase limit. However, the minimum amount of investment required is INR 100. NSCs can be used as collateral for secured loans.
When you invest in NSCs, the interest you earn on the principal amount is eligible for tax deduction under section 80C of the Income Tax Act. During the first four years of investment, you can claim tax relief. However, interest earned in the fifth year is taxable.
You can claim tax relief on investments in NSCs up to Rs. 1.5 lakh per year. You can also claim tax rebate on interest earned on reinvested interest.