Embarking on the journey of investments often feels like deciphering a complex puzzle, where each piece plays a crucial role in shaping your financial destiny. To ensure a seamless fit and maximize returns while minimizing tax burdens, it is imperative to explore and leverage various tax-saving investment avenues, offering deductions of up to Rs 1.5 lakh per year under Section 80C of the Income Tax Act.
Let's delve into nine key avenues that not only yield returns but also provide essential tax benefits:
1) Employee Provident Fund (EPF)
The EPF, synonymous with employment in India, serves as a cornerstone for salaried individuals. This collaborative effort between employees and employers, dedicated to retirement, unfolds over time with compounded contributions, often outperforming many other investments.
2) Sukanya Samriddhi Yojana (SSY)
For parents envisioning a financially secure future for their daughters under 10, the Sukanya Samriddhi Yojana acts as a guardian angel. This government-backed savings scheme, boasting impressive interest rates, ensures a tax-free corpus by the time your daughter reaches adulthood.
3) Public Provident Fund (PPF)
A veteran in the investment arena, the Public Provident Fund offers stability over its 15-year tenure, backed by the government's guarantee. The interest is tax-exempt, fostering unhindered growth in your retirement savings.
4) National Savings Certificate (NSC)
Tailored for a medium-term investment horizon, the NSC combines decent returns with tax benefits, significantly reducing taxable income under Section 80C while ensuring guaranteed returns over its five-year term.
5) Senior Citizens' Savings Scheme (SCSS)
Post-retirement life should be about pursuing passions, not financial worries. For those aged 60 and above, the SCSS offers both serenity and financial benefits. With regular quarterly interest payouts, it is a dependable income stream. The five-year tenure coupled with tax-saving attributes makes it even more enticing. Although investments up to Rs 1.5 lakh are exempt, the interest earned is subject to taxation based on individual tax slabs.
Also Read: PPF Vs NPS - Key Differences Between The Two Investment Options
6) Equity Linked Savings Scheme (ELSS)
Tailored for equity enthusiasts, ELSS provides optimal solutions with diversification and professional management. Its three-year lock-in period stands out among other tax-saving options. Moreover, being linked to the market, it presents opportunities for wealth creation, all while allowing tax deductions. Capital gains arising out of the investments are taxable at 10% for gains above Rs 1 lakh.
7) National Pension System (NPS)
Beyond building a retirement corpus, NPS aids in saving tax. Investments of up to Rs 1.5 lakh can be claimed for tax deduction under section 80 CCE of the Income Tax Act. An additional deduction of Rs 50,000 under section 80CCD (1B) sweetens the deal further. On maturity, the accumulated corpus that is withdrawn and the balance which is used for purchasing annuities are also tax-free. However, the subsequent income received in the form of a regular pension is taxable.
8) Unit Linked Insurance Plans (ULIPs)
Marrying the protective cover of insurance with the growth potential of investments, ULIPs offer a unique proposition. A portion of the premium ensures life coverage, while the rest is strategically invested in equity or debt funds. This duality of safety and growth, along with tax exemptions on the matured amount, makes ULIPs a compelling choice. Their lock-in period spans 5 years and maturity proceeds become taxable if the total premium paid for all ULIPs in a financial year surpasses Rs 2.5 lakh.
9) Tax Savings Fixed Deposits
The trusty Fixed Deposits (FDs) have served generations, proving their mettle time and again. Beyond the conventional FDs, there is a tax-saving variant. By locking in for a five-year term, not only do you earn interest, but you also avail tax deductions under Section 80C.
Also Read: Benefits of Tax Saver Fixed Deposits
Deep-dive into Tax Saving
While the avenues are compelling, understanding the broader landscape of tax saving is essential. Every fiscal year, individuals scramble during the last quarter, looking for ways to minimise their tax liabilities. Proactive planning can not only alleviate last-minute stress but can significantly enhance the effectiveness of your tax-saving strategy:
Diversification: Just as with investments, diversifying your tax-saving portfolio can offer stability. A mix of short-, medium-, and long-term instruments can help navigate economic uncertainties.
Review and balance: The financial market is dynamic. An instrument yielding high returns today might not do so tomorrow. Regularly reviewing and rebalancing your portfolio can ensure optimum performance.
Stay updated: Taxation laws and regulations evolve regularly. Being attuned to these changes can make a world of difference. For instance, in FY 2020-21, the Indian government introduced a new tax regime that offers taxpayers a choice between the old and new tax structures. It's important to note that the tax deductions are applicable only to the old tax regime. By staying informed, you can make real-time adjustments, ensuring that your tax-saving strategies are always at their most efficient.
Conclusion
Crafting a robust financial future demands patience, strategy and consistent effort. With a plethora of tax-saving options available, making informed choices becomes paramount. Whether it is the time-tested PPF, market linked products like mutual funds, NPS and ULIPs, or the trusted FDs, each instrument has its unique strengths. Explore each avenue, and let your informed decisions pave the way to a brighter financial tomorrow.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision
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