Your salary helps you take care of all the commonplace expenses when you start earning. However, as your family grows over time, so do the expectations from your income. Your payment alone might not be able to support your children’s education costs or your parent’s medical expenses. To be able to face such demands in the future, you should consider investing a part of your income. Some of the investments you make can offer tax-saving benefits as well. Keep reading about financial instruments you can add to your tax-saving plan.
Instruments that help you save tax
You can consider the following instruments to invest your income into as a part of your tax-saving plan:
1. Public Provident Fund (PPF)
Public Provident Fund (or PPF) is a popular investment scheme used to save tax. As the Government of India issues it, people consider it a safe investment choice. Under Section 80C of the Income Tax Act, tax exemption on investment of up to Rs.1.5 Lakhs made into the fund can be claimed. Remember that this scheme has a lock-in period of 15 years. Investing money every year is necessary for your PPF account to remain active. You can also enjoy tax benefits on your investment, the interest you get, and the maturity benefits you earn from it.
2. Equity-linked Saving Scheme (ELSS)
ELSS is an open-ended mutual fund scheme. Under this scheme, at least 80% of the assets are invested in the stock market. This means that the returns on ELSS funds vary per the fund’s market performance. Despite the market risk it carries, ELSS is quite a popular option among investors due to the returns offered. Known as tax-saving mutual funds, tax exemption on investment amounts of up to Rs.1.5 Lakhs can be availed annually under Section 80C of the Income Tax Act in ELSS. Another advantage of ELSS funds is that their lock-in period is three years.
3. National Pension System (NPS)
The National Pension System (NPS) is a scheme that allows you to invest a nominal amount of your income in enjoying the benefits of a pension post-retirement. This is especially beneficial for those who are not government employees. Any individual between the age of 18 to 60 years can open an NPS account in India. Investments up to Rs. 1.5 lakh in this scheme are eligible for tax deductions under Section 80C of the Income Tax Act. Additionally, you can avail of tax benefits on investments of Rs. 50,000 under Section 80CCD(1B). As the pension does not start until you are 60, your NPS account will be locked in until you reach that age.
4. Unit-linked Insurance Plan (ULIP)
Unit-linked Insurance Plan is a type of life insurance where you can enjoy the dual benefits of insurance and investments in a single plan. As per the old tax regime, under Section 80C of the Income Tax Act, premium payment of up to Rs. 1.5 lakhs is eligible for a tax deduction. As per the new tax regime, premium payments exceed Rs. 2.5 lakhs are not eligible for tax deductions under Section 10(10D). The returns you earn at maturity are exempt from income tax under Section 10(10D).
5. Life Insurance Policy
Your life insurance policy ensures that your family is well compensated financially if any unfortunate circumstances occur during the policy term. On purchasing a life cover, you are eligible for a tax deduction on both the premium and the sum assured. Premium payments of up to Rs.1.5 Lakhs can be claimed as tax deductions under Section 80C of the Income Tax Act. The second is the sum assured, which is eligible for tax deduction under Section 10(10D).
6. National Saving Certificates (NSC)
This is a type of fixed deposit scheme that you can avail of at a post office. As the money is invested in the post office scheme, the risk is low compared to a fixed deposit. However, keep in mind that returns are lower than an FD offers. Investments made up to Rs.1.5 lakhs are eligible for tax deduction under Section 80C of the Income Tax Act.
7. Children’s fees
You can claim their tuition fees as a tax deduction if you have children in school or college. This deduction can be claimed for fees up to Rs. 1.5 lakh rupees under Section 80C.
8. Senior Citizen Savings Scheme
You can earn good returns by investing in this scheme as a senior citizen. The Senior Citizen Saving Scheme, with the backing of the Government of India, allows senior citizens to invest in this scheme. If you are working beyond retirement age, you should consider this scheme. The interest rate for this scheme is up to 7.4%.
9. Fixed Deposit (FD)
One of India’s most popular investment options, you can invest your money in a Fixed Deposit without worrying about any market vulnerabilities. The interest rates range from 6-7%, with each financial institution offering different tenures for the deposit. You can claim a tax deduction of up to Rs. 1.5 lakhs under Section 80C if you have opted for the old tax regime.
10. Sukanya Samriddhi Yojana
This scheme is specifically aimed at parents with daughters. You can open an account under this scheme if you have a daughter. If your daughter is under the age of 10, you are eligible to open the account. The report is valid till your daughter turns 21 years old or gets married after the age of 18. The amount invested, as well as the returns earned, are all tax exempted.
These are some ways that you, as a salaried individual, can invest and enjoy tax benefits on your investments and earnings. You can use the income tax calculator to determine whether assets are eligible for a tax deduction.