The primary goal while making an investment is to grow the corpus and aim to accomplish long-term as well as short-term goals through it. Another goal on the minds of investors while making an investment is to ensure the highest amount of tax savings possible. As a result, while deciding on the pros and cons of investing in a particular instrument, investors often also weigh how much tax savings it can help achieve. Tax planning has become an integral part of investing.
For instance, term insurance policies are often lauded as being a great investment not only for the long-term benefits they offer to policyholders as well as their dependents but also for how they help save taxes. The Bajaj Allianz Smart Protect Goal plan, available on Finserv MARKETS, provides death benefits of up to Rs. 1 crore at just Rs. 13 a day and ensures assistance to the policyholder’s family in their absence.
Several other investment instruments are ideal for generating returns in a steady manner while also ensuring that taxes are being saved. Read on to learn more about the top income tax saving instruments.
Equity Linked Savings Scheme (ELSS):
ELSS allow for tax savings under Section 80C of the Income Tax Act, 1961 and are one of the most popular instruments with investors looking to generate high returns. They promise one of the highest returns as compared to other instruments in the market, owing to 80% of the portfolio being invested into equity funds. However, owing to this allocation, ELSS is also more susceptible to market instability caused by a variety of factors including economic and political instability. In terms of taxation, ELSS investment exempts the entire principal amount from taxation if the amount is below Rs. 1.5 lakh. Capital gains earned through ELSS are also exempt from long term capital gains tax if they are less than Rs. 1 lakh.
Public Provident Fund (PPF):
While one of the best instruments in terms of tax savings, PPF is not preferred by investors who are looking for high liquidity since they have a mandatory 15 years’ lock-in period. However, they offer stability since the returns are guaranteed by the Central government. In one financial year, an amount of Rs. 1.5 lakh can be invested into a PPF account which will be completely free from taxation. This benefit is available under Section 80C, regardless of whether the deposits have been made multiple times throughout the time or as a lump sum amount.
Different banks offer different types of fixed deposits, with differences in the lock-in periods or the rate of interest they offer. They are a very popular investment instrument with risk-averse investors, who want to earn guaranteed returns on a regular basis. They are also very popular for their tax saving options, since Section 80C of the Income Tax Act endows them with income tax exemption benefits.
Life Insurance Policies:
If you are still unsure about investing, buy life insurance right now. Not only will it ease your mind with regards to what will happen to your dependents after you are no longer around, but it can also significantly help you with taxation matters. Under Section 80C of the Income Tax Act, life insurance policies are exempted from taxation. Apart from that, any payout received under such policies is tax-exempt under Section 10(10D) of the Income Tax Act. What’s more, if you opt for a health-related rider (for eg: Critical Illness Rider), you can avail deductions under Section 80D. If you’re looking to make the most of such life insurance plans, term insurance is one of the cheapest and purest forms of life insurance. The Bajaj Allianz Smart Protect Goal plan, available on Finserv MARKETS, provides a critical illness, accidental death benefit, accidental total permanent disability and many more such riders to enhance your coverage and maximise your tax benefits.
National Pension Scheme (NPS):
NPS is particularly popular among investors who are looking to save up their corpus ahead of retirement. It is a systematic investment policy that lets people save up for many years and enjoy a comfortable life during their retirement years. Under Section 80C of the Income Tax Act, NPS also allows for claim deductions up to Rs. 1.5 lakh upon the principal amount. Section 80CCD(1) further enables individuals who are employees of an organisation to make an investment of up to 10% of their salary, which will be tax-free as well. An investor can also choose to reinvest a certain portion of the amount invested in the NPS, in equity schemes and thereby earn higher returns than would have been possible under NPS.
There are definitely several options open for investors who are looking to invest in tax saving investments that allow for significant tax savings. Of these, the best term insurance policies not only allow investors to ensure the well-being of their dependents but also provide tax benefits for the present. Buy term insurance, available on Finserv MARKETS, and enjoy a range of benefits including customised plans that provide critical illness riders.
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