Every investor is different. The financial objectives, risk appetite, age, and budget can significantly vary between two investors. But maximum tax savings is something that every investor would want to achieve. And with the plethora of tax-saving products available in the market, reducing your tax liabilities is now easier than ever.
Here’s a list of five tax-saving products that every smart investor must have in their portfolio.
1. ELSS Mutual Funds
Investments like Equity Linked Savings Scheme or ELSS is eligible for tax deductions under Section 80C of the IT Act. ELSS investments up to ₹1.5 lakhs in a financial year are eligible for tax deductions. However, these funds come with a lock-in period of three years.
Any deductions you’ve claimed will be reversed if you withdraw your ELSS investments before the 3-year lock-in period. As equity is one of the most rewarding asset classes, long-term investments in ELSS funds could deliver excellent returns.
Unit Linked Insurance Plans (ULIPs) offer the dual benefit of life insurance and investment. Insurance providers provide multiple fund options to help customers choose one as per their objectives and risk appetite. Policyholders can also switch between the funds offered by the insurer as per their changing requirements and responsibilities.
As ULIPs is primarily a life insurance product, premiums of up to ₹1.5 lakhs in a financial year are eligible for deductions from the taxable income under Section 80C. The maturity amount is also tax-exempt under Section 10(10D) if the plan’s annual premium is below ₹2.5 lakhs.
Retirement plans like deferred annuity plans offered by top insurers can provide tax savings and steady income after retirement. These pension plans are eligible for a deduction of up to ₹1.5 lakhs in a financial year under Section 80CCC of the IT Act. However, the deduction is within the Section 80C limit of ₹1.5 lakhs.
Most retirement or pension plans also come with a built-in life cover. After retirement, policyholders are also offered multiple annuity payout options.
4. Government-Backed Schemes
If you are a risk-averse investor, government-backed schemes such as PPF (Public Provident Fund) and NPS (National Pension Scheme) can be ideal tax-saving investments. PPF investments of up to ₹1.5 lakhs in a financial year are eligible for tax deductions. The interest earned from PPF is tax-exempt, and the maturity amount is tax-free.
With NPS investment, employees can claim a deduction of up to ₹1.5 lakhs in a financial year under Section 80CCD (1).
5. Health Insurance
With the rising cost of quality healthcare in the country, purchasing a feature-packed health insurance plan for yourself and your family is essential. Besides protecting you against high medical expenses, health insurance plans also offer tax savings. Under Section 80D, you can claim a deduction of up to ₹25,000 on the premiums paid for purchasing a health plan for yourself and your family.
You can claim an additional deduction of up to ₹50,000 if the family health plan covers a senior parent.
6. Final Word
Whether you are looking for long-term wealth creation, steady post-retirement income, or securing the financial future of your loved ones, you can now find a tax-efficient investment product for each of your objectives.
With the returns filing deadline around the corner, consider these tax-saving investments to reduce your tax liabilities and fulfil your financial goals.