At the end of a financial year, many people realise that their plans for saving on taxes remain unmade. But if you take the time to begin planning now, you can end up saving a lot of your income.
Here are the different ways in which you can invest to save on taxes:
- Insurance Policies:
In difficult times, a life insurance policy serves to be very useful. Moreover, the amount that you pay on the policy is eligible for tax deduction as per Section 80C. The policy premium can be claimed as a deduction for a maximum amount of INR 1 lakh. Additionally, amounts paid to a beneficiary are not subject to taxation.
Note that as per Section 80D, for a health insurance policy, the premium amount can be claimed as a deduction for amounts up to INR 15, 000. This amount can even be INR 20, 000 for health insurance policies held by senior citizens.
- National Pension Schemes (NPS):
The NPS is one of the very few investment schemes that lets an investor exceed the INR 1 lakh limit of a tax deduction as per Section 80C. For a National Pension Scheme, a portion of the basic salary, up to a maximum of 10%, which is contributed by a company towards an employees’ NPS, can be claimed as a tax deduction.
- Public Provident Fund (PPF):
It is noteworthy that the investments made in a PPF are eligible for tax deduction as per Section 80C. The limit on this is of INR 70, 000. More significantly, the interest and the amount received when the investment matures is free from any taxation. However, a concern for many may be that a PPF comes with a lock-in investment period of 15 years.
- Tax Saver Fixed Deposits:
Fixed deposits remain a very popular investment option for many. The secured nature of the FD and guarantee of assured returns make it an appealing prospect for many. Also, the flexibility in terms of how the returns are paid out is another benefit of opening an FD – The returns can be claimed on a yearly/monthly basis as per the term that was chosen for the fixed deposit.
The current FD interest rates being offered by various banks and financial institutions fall in the range of 6-8%. You can also compare different offers online and apply for an FD through a bank or a financial institution’s website.
However, besides a regular FD that helps you earn assured returns, many financial institutions also offer a tax saver fixed deposit. This is a type of FD wherein you claim a tax deduction as per Section 80C. Under this scheme, you can claim a tax deduction of up to INR 1.5 Lakh.
A tax saver FD can be in the name of one or more people. However, for a jointly held account, the tax benefits can be availed by the first holder of the FD. Note that it is also possible to nominate someone to receive the returns from this FD.
The period of lock-in for long term investment is of 5 years. Returns are paid on a monthly or quarterly basis for such an FD. Also, the FD interest rate offered can be more if the applicant is a senior citizen and has valid proof of his/her age.
Moreover, the interest earned from a tax saver FD is taxable, with the tax being deducted at the source. Herein, a person is taxed according to the tax bracket in which they fall.
Additionally, withdrawing the investment amount prematurely may not be possible for some banks and financial institutions. Also, note that a personal loan cannot be taken against a tax saver fixed deposit.
Thus, when it comes to tax saving investments, there are various options available to you. Carefully consider these and choose what most suits your financial needs.