Tax-saving investments are essential for reducing your taxable income and maximising savings. In India, there are various schemes and plans designed to provide tax benefits while helping individuals build a secure financial future.
Understanding Tax-Saving Investments**
Tax saving schemes are financial instruments offering deductions or exemptions under the Income Tax Act. These investments help individuals reduce their taxable income, thereby lowering their tax liabilities. The most common sections providing tax benefits are Sections 80C, 80D, and 10(10D).
Popular Tax-Saving Investments in India**
Here are some of the most effective tax-saving investments available in India.
1. Public Provident Fund (PPF):
A government-backed scheme with attractive interest rates, the Public Provident Fund is an option for people who are looking to invest for the long term in a scheme offering stable returns.
- Investment Limit: Minimum ₹500 and maximum ₹1.5 lakhs per annum.
- Interest Rate: Approximately 7.1% per annum.
- Tenure: 15 years, extendable in blocks of 5 years.
- Tax Benefits: Investments qualify for deduction under Section 80C, and interest earned is tax-free.
2. Employee Provident Fund (EPF):
The Employee Provident Fund, or EPF, is a scheme for employed people to make regular contributions. Since the benefits are best reaped over a longer duration, the scheme acts mainly as a retirement benefit option for salaried employees.
- Contribution:Both employee and employer contribute 12% of the basic salary
- Interest Rate:Approximately 8.5% per annum.
- Tax Benefits:Employee contributions are deductible under Section 80C, and interest earned is tax-free up to a certain limit.
3. National Savings Certificate (NSC):
It is a fixed-income investment scheme with tax benefits.
- Investment Limit: No maximum limit.
- Interest Rate:Approximately 6.8% per annum.
- Tenure:5 years
- Tax Benefits:Investments qualify for deduction under Section 80C.
4. Equity-Linked Savings Scheme (ELSS):
It is a mutual fund scheme with tax benefits and market-linked returns.
- Investment Limit:No maximum limit.
- Lock-in Period: 3 years
- Tax Benefits: Investments qualify for deduction under Section 80C.
5. Unit Linked Insurance Plans (ULIPs):
It is a combination of investment and insurance, offering market-linked returns.
- Investment Limit:No maximum limit.
- Lock-in Period: 5 years
- Tax Benefits: Investments qualify for deduction under Section 80C, and maturity proceeds are tax-free under Section 10(10D), subject to certain conditions.
6. Senior Citizens Savings Scheme (SCSS):
It is a scheme designed for senior citizens offering regular income.
- Investment Limit: Minimum ₹1,000 and maximum ₹15 lakhs.
- Interest Rate:Approximately 8% per annum.
- Tenure:5 years, extendable by 3 years.
- Tax Benefits: Investments qualify for deduction under Section 80C, and interest earned is taxable.
7. National Pension System (NPS):
It is a government-backed retirement savings scheme.
- Investment Limit:No maximum limit.
- Tax Benefits: Contributions qualify for deduction under Section 80C and 80CCD(1B).
8. Tax-saving Fixed Deposits:
It offers fixed deposits with tax benefits under Section 80C.
- Investment Limit: No maximum limit.
- Interest Rate: Varies by bank, typically around 5.5% to 7% per annum.
- Tenure:5 years
- Tax Benefits:Investments qualify for deduction under Section 80C.
Tax Benefit on Life Insurance**
Life insurance policies provide significant tax benefits under various sections of the Income Tax Act:
Premium Payments:
Premiums paid for a life insurance plan qualify for deduction under Section 80C, up to ₹1.5 lakhs per annum. Maturity Proceeds:
The maturity proceeds, including bonuses, are tax-free under Section 10(10D), provided the premium does not exceed 10% of the sum assured. Term Plan:
Premiums paid for term plans also qualify for deduction under Section 80C.
Using a Life Insurance Calculator
A life insurance calculator helps in determining the appropriate coverage amount and premium based on individual needs. It considers factors such as age, income, liabilities, and financial goals to provide a customised insurance plan.
Using these inputs, the life insurance calculator can estimate the sum assured and the premium required to provide adequate financial protection.
Annuity Plan**
It is a type of insurance product providing regular income in exchange for a lump sum investment. It is particularly beneficial for retirees looking for a steady income stream.
Immediate Annuity Plan:
Provides immediate regular payouts after a lump sum investment. Deferred Annuity Plan:
Payouts begin after a certain period, offering higher returns due to the investment growth during the deferment period.
Premiums paid for an annuity plan qualify for deduction under Section 80C, and the annuity income, are taxable as per the individual's tax slab.
Tax saving investments are essential for individuals looking to minimise their tax liabilities while building a secure financial future. By exploring various tax saving schemes, including ULIPs and annuity plans, and utilising tools such as a life insurance calculator, investors can make informed decisions. Combining these investments with a term insurance plan ensures comprehensive financial protection and tax benefits, helping individuals achieve their financial goals efficiently.**
** Tax exemptions are as per applicable tax laws from time to time.
Disclaimers:
Unit Linked Insurance Products are different from the traditional insurance products and are subject to risk factors. The Premium paid in unit-linked life insurance policies are subject to investment risks associated with capital markets and NAVs of the units may go up or down, based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. IndiaFirst Life Insurance Company Limited is only name of the Insurance Company and _________________ (UIN__________) is only the name of the Unit Linked Life Insurance contract and does not in any way indicate the quality of the contract, its future prospects, or returns. Please know the associated risks and the applicable charges from your Insurance Agent or the Intermediary or policy document issued by the Insurance Company. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns. For more details on risk factors and terms and conditions, please read the sales brochure carefully before concluding the sale.
IndiaFirst Life Insurance Company Limited, IRDAI Regn No.143, CIN: U66010MH2008PLC183679, Address: 12th & 13th floor, North [C] Wing, Tower 4, Nesco IT Park, Nesco Center, Western Express Highway, Goregaon (East), Mumbai – 400 063. Toll free No – 1800 209 8700. Email Id:customer.first@indiafirstlife.com, Website :www.indiafirstlife.com, Fax No. +91226570600. Trade logo displayed above belongs to our promoter M/s Bank of Baroda and is used by IndiaFirst Life Insurance Co. Ltd. under license. Adv. Ref. No.:_________.
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