Did you know that tax savings and investment can go hand-in-glove in India? In fact, today, you can subscribe to most tax savings plans online. The Income Tax Act of India allows you to invest in many tax savings plans. However, here are the 4 best options, which you can definitely explore as an investor:
- Life insurance and health insurance plans
Although traditional, there is nothing that can beat a life insurance plan as a tax saving investment. Likewise, health insurance plans are also a good investment option. Premium that you pay on your life insurance plan can be saved under section 80C of the Income Tax Act. Furthermore, the total amount rewarded to you as the beneficiary of an insurance plan is not included as part of your taxable income according to section 10(10D) of Income Tax Act.
Similarly, by investing in a health insurance plan, you can get a deduction under Section 80D of the Income Tax Act for the premium that you have paid, which will also be deducted from your total taxable income. However, there is an upper limit for this deduction, which is at Rs. 15,000, which increases up to Rs. 20,000 for senior citizens. Thus, if you have a health insurance plan for yourself as well as your elderly parents, you can benefit through getting a total deduction of Rs. 35,000 on your total taxable income.
- Equity Linked Savings Scheme (ELSS)
A mutual fund scheme, ELSS is a very potent tax saving instrument. Moreover, ELSS does not only save you taxes, but will also help you make a profitable investment since they have an equity element. Further, owing to the equity element of ELSS, they provide you with superior returns compared with other tax savings instruments. An investor can either invest in ELSS in lumpsum or through SIP. The lock-in period for ELSS is the lowest among all tax savings instruments at 3 years.
- National Pension Plan (NPS)
Growing consistently in India over the past few years as a tax savings instrument, NPS also helps you secure your retired life through consistent monthly income after retirement. As a salaried employee, you can save more the overall tax saving deduction limit of Rs. 1.5 lakh under section 80C of the Income Tax Act through NPS. Your employer can also contribute to your NPS account a certain proportion of your basic salary allowable as tax deduction. The NPS advantage lies in the fact that you can save an additional tax of Rs.50,000 under section 80CCD1B, which is over and above the full limit of Rs. 150,000 limit under 80C.
- Public Provident Fund (PPF)
Tried-and-tested, PPF is one of the oldest and most commonly used tax savings instruments in India under 80C. It has an upper cap of Rs1,50,000. The interest income on PPF is tax-free. However, the big difference between PPF and other instruments such as ELSS is the lock-in period. In case of PPF, you will need to stay invested for 15 years. In case you are looking at short-term options, it may not suit your requirement.
Every tax saving investment option offered by the Income Tax Act has its own advantages and disadvantages. Thus, if you want to know more about the best tax saving investment plans and ideas, write us at [email protected]