Taxes are an inevitable element of our lives. Whether you are a working professional or a self-employed individual, you cannot escape from paying your taxes. While many people might dread tax payment, the rest might start tax planning early to save money. Since the new financial year is around the corner, you should invest in tax saving investments that can reduce your tax liability.
Tax-saving investments are essential since they allow you to claim deductions under Section 80C of the Income Tax Act, 1961. According to Section 80C, you can claim a tax deduction up to Rs. 1,50,000 on your taxable income. Although there are numerous best investment plans that offer tax exemptions, you might not know where to invest money. Before selecting a plan to save taxes, let’s take a look at different types of investments to understand the best tax-saving investment options under Section 80C:
Unit Linked Insurance Plan (ULIP)
A ULIP plan is a dual-benefit financial product. When you purchase a ULIP policy, you can reap the benefits of investment as well as insurance. While a ULIP plan lets you diversify your investment portfolio, your family receives death benefits in your absence. The death benefit is tax-free, as stated under Section 10(10D) of the Income Tax Act, 1961. When you buy a ULIP policy, you should pay premiums regularly to reap the benefits in the long run. The premiums are eligible for tax deductions under Section 80C of the Income Tax Act, 1961.
Provident Fund (PF)
A PPF account is a long-term investment, which provides tax deductions under Section 80C. However, the tax-saving benefits might depend on the type of PPF account you have:
Public Provident Fund (PPF)
PPFs are government-backed investment plans that can be eligible for tax deductions. The interest you earn from your PPF account is tax-free. The current rate of interest might be approximately 0.8%.
Employee Provident Fund (EPF)
EPFs can be offered to salaried professionals. The EPF interest rate might be over 8.55%. When you open an EPF account, your whole amount is tax-free, along with interest. However, your balance can be tax-free only if you withdraw your money after five years.
National Pension System (NPS)
NPS is a retirement investment plan introduced by the government of India. Whether you are a working professional or a part of an unorganised sector, you would receive income after retirement from the NPS scheme. Under NPS, you can claim a tax deduction up to Rs. 1,50,000 on your taxable income. Additionally, your contributions are eligible for tax deductions.
Sukanya Samriddhi Yojana (SMY)
Sukanya Samriddhi Yojana safeguards the future of your daughters. The main objective of the SMY scheme is to work for the betterment of every girl child in the nation. As a parent, you can open an account under your daughter’s name until she reaches 10 years. When your daughter crosses 18 years, you can partially withdraw over 50% of your invested capital. The maximum limit of investments under the SMY account might be Rs. 1,50,000 every financial year. The investment, withdrawal, as well as the maturity amount, are tax-free.
In a nutshell, the right time to start tax planning is at the beginning of every financial year. Delaying tax planning at the last minute might lead to taking hassled decisions in the future. If you invest in tax-saving plans at the beginning of every financial year, you would be able to multiply your funds over a long time. In the end, the best way to invest money is to start as early as possible.