Tax Saving Time: 3 Ways to Save Tax
Written on Thursday, January 12, 2017
By Mitali Sharma
Tax Saving time is here. If you are yet to do your tax planning, then it's time to gear up and make some tax saving investments. But while making these investments, choosing the right financial products is very essential because the right selection will help you not just in getting tax benefits but will also help you in fulfilling your financial aspirations.
1. Invest up to Rs 1.5 Lakhs u/s 80C of Income Tax and Save Tax up to Rs 46,350*
The maximum tax deduction allowed under Section 80C is Rs. 1,50,000. Here, you get various options to choose from, most of which are for 'saving' plus 'wealth creation'. The popular options are Public Provident Fund (PPF), Tax Saving Fixed Deposits (FD), Equity Linked Investment Schemes(ELSS), ULIPs National Savings Certificate(NSC), Senior Citizens Saving Scheme etc. Under section 80C, you can also claim tax benefits for paying life insurance premiums. All life insurance products are approved of getting tax benefits.
PPF has 15 years lock-in period and FD, NSC, Senior Citizens Saving Scheme come with 5 years lock-in period. In this regard, ELSS is a better option because it has the shortest lock-in period of only three years. Not just that, ELSS has various other key features that make it a very good option for those who are looking for a tax saving product with high wealth creation potential.
Why Equity Linked Investment Schemes(ELSS) is an Ideal Option?
-Considering the falling FD rates, ELSS appears to be a very lucrative investment option. Being an equity based investment, it is capable of delivering better returns in the long term as compared to other asset classes over the long term.
-It offers the benefits of capital appreciation, as well as tax benefits
-Even the returns (capital gains) earned through ELSS are tax-free.
-If you opt for the dividend schemes, then even during the lock in period, you can get income from your investment amount.
-For ELSS investment, one can adopt the SIP route and invest in a small amount on a monthly basis.
-Even though ELSS comes with only 3 years lock-in period, one should try not to withdraw the investment and continue it for a longer duration. In this way, they can earn higher returns and glide over market volatility.
2. Invest up to Rs 60,000 u/s 80 D and Save Tax up to Rs. 18,540*
Section 80 D of income tax entitles you to claim tax deductions for the premium paid for medical insurance. If you buy a medical insurance of annual premium up to Rs. 60,000 (maximum limit), then under section 80 D, you can save yourself from paying tax up to Rs. 18,540. Moreover, having a medical insurance is highly essential to ensure financial stability during medical emergencies. If you are paying the premium for self & family, then you can claim tax deductions for maximum Rs 30,000 paid as premium. If you are paying the premium for parents, then you can claim additional tax deductions for maximum Rs 30,000 paid as premium.
Section 80 D Maximum Tax Deduction limits: Rs 25,000 for individuals under 60 years and Rs 60,000 for individuals above 60 years.
3. Invest up to Rs 50,00 u/s 80 CCD and Save Tax up to Rs. 15,450*
Once you exhaust the 1.5 Lakhs limit of section 80 C, you can further invest in National Pension System (NPS) under section 80 CCD and claim tax deductions for the maximum investment of Rs. 50,000. Here, you can save yourself from paying tax up to Rs. 15,450 and can also make your retirement financially secured.
Advantages of NPS
-It offers a mix of asset classes as investment options, which includes Equity (E), Corporate Bonds (C) and Government Securities. Equity investment is capped at 50%.
-While investing in NPS, one gets the choice of pension fund managers to select from. Thus, subscribers' funds are managed by experienced fund managers. (Fund returns are totally market-linked.)
-NPS also provides the option of switching from one investment option to another option or from one fund manager to another.
Thus, sections 80 C, 80 D and 80 CCD, combined, give you the opportunity to save tax up to Rs. 80,340.* Also, by investing under these three sections, you can build a very healthy portfolio for yourself. It takes care of your financial aspirations like wealth for future, financial security during medical emergencies, wealthy retirement and thus gives you a sense of security along with tax benefits.
* Tax benefit calculated at the highest tax slab of 30% and includes 3% education cess
** Mutual funds investment are subject to market risks.
*** It's an assumed rate of interest based on past performances.