You have to pay tax if you are a responsible citizen. Everyone knows about this fact, but yet, they fail to comprehend the significance of tax planning to save a lot of money. It is true that everyone has to pay taxes if they fall under a particular tax bracket. But, lots of people overlook the importance of investments that help you save some money in the form of tax. These products will help us shirk paying taxes to the government. It is better you start saving during the heyday of youth. The earlier the better. There are certain factors that you should give attention to. Check whether the investment options fetch huge returns with minimum returns. You should also slice and dice every minute detail about the various options of investment available to you.
What are those legal provisions that will help you to save some more amount in your pocket?
Section 80 C of IT Act is one of the best options for saving tax. According to Section 80C, the money you invest in certain investments is tax deductible. Some of the example for such kinds of investments are ELSS, insurance, PPF, NSS, bonds, etc. It should be kept in mind that beyond Rs. 1,50,000 no deduction is available. In other words, the maximum deduction available is Rs. 1,50,000.
Come on, let us discuss something about top tax saving investment schemes that help you pay a lesser amount as tax.
- Life Insurance: – Life insurance has two benefits. One is life cover and another one returns from investments. Unit-linked Insurance plans save tax up to Rs.1, 50,000. The premium you pay is eligible for tax deduction under section 80 C. The proceeds that you or your beneficiaries get is exempt from tax under section 10 (10) (D). If yours is a pension plan, 1/3rd of the lump sum paid is not taxable. Only 2/3rd of the lump sum is taxable.
2. Health Insurance: – Accepting the fact that health insurance policies don’t fetch you any monetary returns, let us discuss something about the tax benefits it offers you. The premium you pay towards health insurance is deductible to an extent of Rs. 15,000. If you take a policy in the name of your parents who are senior citizens you get an extra tax deduction of Rs. 20,000. In such a case, the amount of tax deduction is Rs. 30,000. But, this tax deduction is not available for the group health insurance plan provided by your employer y as long as you are in employment.
3.ELSS mutual funds: – This financial product also helps you to save tax under section 80C. The amount collected in this investment plan is invested in the market that makes it a high-risk product. At the same time, it fetches you unimaginable returns. It is such kind of a product that invests all your money in the stock market and at the same time locks it only for 3 years of time. It gives you the option to invest a small chunk of your income in ELSS funds. A systematic investment plan offers you the option to invest a very meager amount of your salary every month. This way this will help you to be a disciplined investor at the same time fetch you a fortune after a certain number of years.
4. NPS: – National pension scheme is one such scheme in which the employer contributes 10% of your salary to the pension scheme and that is completely tax-free. But your contribution towards NPS is taxable if your contribution is more than RS. 1 Lakh.
5. PPF: – This is an investment option set up by the central government. In PPF, the contribution towards this public provident fund is tax-free up to an amount of Rs. 70,000. The interest amount you will receive after maturity is absolutely tax-free.
These are the five tax saving investments in India.