Top 10 tax-saving instruments for investors!

Tax saving investments play a pivotal role in a taxpayer’s life. They not only save tax but also generate tax-free income, in some cases. However, not many taxpayers are aware of the multiple tax-saving options available to them. Many-a-times taxpayers fail to plan and make hurried decisions in the last quarter to invest. However, the ideal time to begin planning is at the beginning of the financial year to reap maximum returns.

The article lists the top ten tax-saving instruments that can help reduce your tax outgo.

  • Equity Linked Savings Scheme (ELSS)

ELSS funds are a popular mutual fund tax saver investment option. If you invest in ELSS fund (tax saving mutual fund), the total principal amount up to Rs.1.5 lakh is exempt under Section 80C. Any capital gains less than Rs.1 lakh is exempt, whereas 10% tax is attracted for gains beyond that. ELSS mutual funds are ideal for people wishing to invest for the short-term as the tax saver mutual fund has a lock-in period of three years.

  • Public Provident Fund (PPF)

PPF has a lock-in period of fifteen years, which can be extended in blocks of five years. You can invest a maximum of Rs.1.5 lakh in a financial year and claim an exemption under Section 80C.

  • Life Insurance

Under Section 80C of the Income Tax Act, you can claim a maximum deduction up to Rs.1.5 lakh on the premiums paid towards a life insurance policy.

  • Health Insurance

Under Section 80D, you can claim a deduction for medical insurance for self, spouse and dependent children up to Rs.25,000 (Rs.50,000 if you are over sixty years). Besides, you can insure your parents and can claim an additional deduction up to Rs.25,000 (Rs.50,000 if they are over sixty years) over and above the aforementioned claim.

  • National Pension Scheme (NPS)

Investing in NPS can get you a deduction up to the maximum limit of Rs.1,50,000 under Section 80C and Rs.50,000 under Section 80CCD (1B).

  • National Savings Certificate (NSC)

You can choose a maturity period of five years and ten years by investing in NSC. It allows for exemption up to Rs.1.5 lakh on the principal amount and the reinvested interest amount under Section 80C.

  • Unit Linked Insurance Plans (ULIPs)

Under Section 80CCC, you can claim a maximum deduction up to Rs.1.5 lakh, with exemptions on the premium amounts as well as principal investment.

  • 5-year Bank Fixed Deposits

Most banks and post offices offer fixed deposits with a lock-in period of five years. However, the interest earned from these FDs is subject to TDS and fully taxable.

  • Sukanya Samriddhi Yojana (SSY)

As part of the ‘Beti Bachao Beti Parhao’ policy, SSY is available only for taxpayers who have a daughter less than ten years old. The scheme has an annual cap of Rs.1.5 lakh on investment and the interest earned is tax-free.

  • Infrastructure Bonds

An investment up to Rs.20,000 can be utilised for tax exemption under Section 80C by investing in infrastructure bonds.

Conclusion

Whether you choose to invest in tax saving mutual funds like ELSS or other instruments such as PPF, and NSC, you may want to consider factors such as liquidity, returns and safety. It is also essential to understand the taxability of each investment option so you can meet your financial planning with ease.