Taxes can cast a shadow over a significant chunk of your disposable income. In order to save your taxes, you can invest in instruments that offer deductions under the Income Tax Act of 1961. Such schemes are called tax-saving investments.
Sections 10D, 80C, 80D, 80CCD (1B), 24(b) and 80TTA/ 80TTB mention certain tax-saving schemes that you can choose from.
To know more about these tax-saving investments, read on.
If you are looking for tax-saving options, here is a list of the top investment avenues that you can browse. Choose the ones that suit your long-term goals without compromising on your liquidity today.
These types of plans are considered a popular investment for tax saving, allowing you to get exemptions up to ₹1.5 lakhs under Sections 80D and 80C. What’s more, withdrawing or getting maturity amounts is also free from taxes, which makes ULIPs very attractive in 2023.
By investing your corpus across debt and equity, ULIPs offer you the probability of earning good returns. However, they also allow you to reduce your exposure to risk by allowing you to choose between fixed-income and equity funds. You can also take advantage of riders related to critical illness and accidents.
Also Read Tax Free Allowances
If you want to make a debt investment with tax benefits, the National Savings Certificate (NSC) can be a great choice. This scheme is considered to be the best for small-income as well as mid-income investors.
While offering a fixed-income return, this bond investment also allows you to save up to ₹1.5 lakhs of income tax under Section 80C provisions. A fixed duration of 5 years with a minimum investment of ₹1,000 makes this an ideal investment.
For risk-averse investors, fixed deposits (FDs) are a popular choice as they are not influenced by market conditions. In addition, a type of FD called the tax-saving FD which also allows you to enjoy exemptions on your income tax liabilities under Section 80C.
By investing in this FD, you can claim tax benefits of up to ₹1.5 lakhs. The investment horizon is fixed for a five-year period just like NSC. The rate of interest on these FDs ranges between 5.5% – 7.75% p.a. depending on the institutions. Most FD issuers also offer higher rates to senior citizens.
Read about SBI FD rates 2023
Equity-linked savings schemes (ELSS) are investments with maximum exposure toward equity-based securities. These investment tools come with a lock-in of three years. You can invest a lump sum amount or through a systematic investment plan (SIP) in an ELSS fund.
This option allows you to claim exemptions of up to ₹1.5 lakhs on your taxable income under Section 80C. However, the returns on this scheme are market-linked and can fluctuate regularly based on the ups and downs recorded in the market. However, you also have the option to earn high returns in comparison to fixed-income options.
The Government of India offers multiple small savings schemes to help you save tax. One of the most popular among them is the Public Provident Fund (PPF). Like NSC, it is also a debt scheme with a tenure of 15 years. The scheme’s interest rate is revised quarterly by the government, which allows you to earn fixed returns.
It not only allows you to claim tax deductions of up to ₹1.5 lakhs in a financial year, but the interest that you earn on your PPF investment is also entirely free from taxation.
Want to upgrade your lifestyle but have funds tied up in tax-saving investment options? Think before you withdraw from such schemes. After all, your future is as important as your present.
Read more about How to save income tax on salary
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You have multiple options if you wish to park your funds in a tax-saving scheme. These include Insurance Plans, National Pension Scheme (NPS), Provident Funds, ELSS, etc.
Investing in tax-saving options allows you to avail of tax deductions under sections 80C, 80D, 80CCD (1B), 24(b), 80TTA/ 80TTB, and 10 (10D) of the Income Tax Act of 1961.
The minimum amount of investment needed for tax-saving investments varies based on the scheme you choose. For instance, you need to invest at least ₹500 in PPF, NSC and tax-saver FDs.
If your earnings are up to ₹5 lakhs a year, you do not have to pay any tax. You can use the standard deduction as well as deductions under 80C, 80CCD, 80D and 24(b) to save 100% on taxes if your income is up to ₹10 lakhs a year. This is based on the investments and other expenditures you have and can be carefully planned out.
Section 80D of the Income Tax Act allows you to claim deductions on the money you spend on paying medical or health insurance premiums. The minimum deduction you can get is ₹25,000.