- During tax season, there is a rush for investments in tax-saving instruments
- There are various tax savings instruments such as life insurance, fixed deposits, etc.
- These instruments offer tax benefits under various sections of the Income Tax Act 1961
At the end of financial year, there's a rush among taxpayers to invest in various tax-saving instruments. While investments in these instruments are an ideal way to reduce tax liability, it’s more important for you to understand their pros and cons to make effective investment decisions. Given below are 11 such instruments that help you plan, manage and save taxes.
Your Ideal Tax Partners
- Life Insurance
- Fixed Deposits
- Equity Linked Savings Scheme
- Public Provident Fund
- National Savings Certificate
- National Pension System
Tax benefits coupled with protection and savings make life insurance an exceptional financial tool. You can avail tax benefit on the premiums paid for self, spouse, or children under section 80C of the Income Tax Act. The maximum deduction allowed is ₹1.5 lakhs. Tax benefits are also available on maturity proceeds received, subject to prevailing tax laws.
Fixed Deposits (FDs)
You can claim tax benefits for investments made in Fixed Deposits up to ₹1.5 lakhs under section 80C of the Income Tax Act, 1961. All banks offer FDs and they are easy to open and operate.
Funds Notified by the Central Government
Investments made in funds notified by the central government such as National Defence Fund, Prime Minister's Drought Relief Fund, Swachh Bharat Kosh, Clean Ganga Fund, etc., are eligible for tax deductions. However, the amount shouldn't be more than 10% of the adjusted gross total income.
Equity-Linked Savings Scheme (ELSS)
Diversified equity mutual funds, investments made in ELSS are subject to tax benefits up to ₹1.5 lakhs a year under section 80C.
Public Provident Fund (PPF)
Deposits made in PPF qualify for tax deductions under section 80C. You can claim a maximum deduction of ₹1.5 lakhs in a financial year. The accumulated interest and the amount are also exempt from tax during withdrawal.
National Savings Certificate (NSC)
Available at designated post offices, with a lock-in period of 5 years, you can claim tax sops on investment made in NSCs. You can avail tax benefits on investments made up to ₹1.5 lakhs in NSCs for a fiscal year.
Employee’s Provident Fund (EPF)
An avenue that helps you save tax and build a tax-free corpus, the contribution you as an employee make towards EPF, qualifies for tax benefits under section 80C. The maximum limit is ₹1.5 lakhs per year. Note that both the employers’ and employees’ contribution earn interest declared by the government every year, which is tax-free.
National Pension System (NPS)
NPS, started by the Government for those working in the unorganised sector to receive pension after retirement, is a prudent tax-saving instrument. While investments made up to ₹1.5 lakhs qualify for tax deductions under Section 80C for a fiscal, you can claim an additional deduction of ₹50,000 under section 80CCD (1B).
Donations made to an institution conducting scientific research or college or university approved by the Government of India are eligible for tax deduction under section 80GGA. You can claim a deduction over ₹10,000, only if you've made the contribution through any other mode other than cash.
Sukanya Samriddhi Yojana
A special yojna (scheme) launched by the Government to help parents build a substantial corpus, addressing the expenses of higher education and marriage of a girl child. An investment made in Sukanya Samriddhi Yojna qualifies for deduction under section 80C. Deposits made up to ₹1.5 lakhs in a financial year can be claimed as tax benefits.
You can save taxes on interest paid on home and education loans (for higher education). While in education loan, the amount paid as interest for a particular financial year is eligible for deduction without a limit, for home loans it is ₹50,000 per year, subject to certain conditions.
Exide Life Insurance has a host of tax-friendly life insurance policies for your needs. Know more about our products here. These tax-saving instruments not only help you save taxes but inculcate a habit of disciplined savings essential for building long-term wealth.