Are you one of those investors who resort to last-minute tax planning? And in an attempt to do so, do you often end investing in instruments not suitable for your portfolio? This article will provide you with some of the best tax-saving investments offered to investors to reduce their tax burden.
Tax-saving investment options under Section 80C and Section 80D
Some of the investment options available under Section 80C include Equity Linked Savings Scheme (ELSS), life insurance, National Pension System (NPS), Senior Citizen Savings’ Scheme (SCSS), traditional pension plans, bank fixed deposits, Unit-Linked Insurance Plan (ULIP), Public Provident Fund (PPF), etc. Section 80D covers health insurance plans. Let’s look at some of the popular Section80D and Section 80C investments:
- Health insurance – Under Section 80D of the Income Tax Act, 1961, an investor can claim tax deductions up to ₹1 lakh for premiums paid towards medical insurance plans bought for insuring self, children, spouse, and/or parents. The deductions under Section 80D are over and above exemptions you can claim under 80C. You can claim up to Rs20,000 for senior citizens and Rs15,000 for others.
- Life insurance – Premiums paid towards life insurance, for yourself or your family, is eligible for deduction up to Rs1.5 lakhs u/s 80C. The minimum tenure for a life insurance policy is 5 years. Further, returns from these investments are not taxable.
- Equity-Linked Savings Scheme (ELSS) –ELSS funds, also known as tax-saving mutual funds are the preferred mode of the investment for several investors as they offer dual benefits of capital appreciation and tax-saving features. Investments in ELSS mutual funds are eligible for tax deductions of up to Rs1.5 lakh. These tax-saving investments enjoy the lowest lock-in period of 3 years than other 80C investments.
- Unit-Linked Insurance Plan (ULIP) –It is a combination of investment plus insurance. ULIPs are insurance policies that provide an individual with the potential of wealth creation while simultaneously providing them with the security of a life cover. Under the ULIP scheme, a part of the premium goes towards life cover and the rest is assigned to a common pool of money, called a fund, just like a mutual fund, that invests in debt or equity or a combination of both. These schemes have a lock-in tenure of 5 years. The premium paid towards ULIP is ealigible for deduction u/s 80C for up to Rs1.5 lakh p.a.
- Senior Citizen Savings Scheme (SCSS) – It is a government-sponsored savings scheme accessible to Indian residents who are above the age of 60 years. The maturity of this savings scheme is 5 years, although it can be extended by 3 years. The interest rate on SCSS is declared at the time of purchasing the scheme. The interest ratesremain persistent throughout the duration and are unaffected by successive alterations in the futurequarter.SCSS offers the highest interest rates as compared to different savings investments available in India. SCSS schemes also offer tax benefits of up to Rs1.5 lakh under Section 80C of the Income Tax Act, 1961.
There are different types of investment available to investors to suit their financial needs. Understand which investment options work best for you and create a financial plan. Financial planning helps to achieve your financial goals and objectives. Happy investing.