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Tax-Saving Investments - These 4 are Absolutely Worth Trying

Under the existing Indian tax system, you can avail of significant tax savings through various investment plans

Wednesday May 6, 2020 11:34 PM, ummid.com News Network

Tax Saving Investments

Inefficient tax planning is the quickest and the surest way to deplete your take-home income, especially when you are closer to the end of the financial year. It is not only disheartening to see all your hard-earned money being applied towards impending taxes indiscriminately, but it will also affect your financial commitments. This the reason it is imperative for you to plan your tax saving investments and do so promptly.

Under the existing Indian tax system, you can avail of significant tax savings through various investment plans. Otherwise, when you pay a high income tax, it usually indicates poor money management planning, making it more robust for you to meet your financial-planning targets. As such, you are advised to have a clear plan for your tax saving investments to prevent any last-minute rude shocks.

As you are approaching the end of FY2019-20, you should be aware of tax saving investments that align with your life goals and plan your investment strategy accordingly. Here are the best four that you should consider to not only save your taxes but also to secure your family’s financial future.

1. Life insurance

Before you venture into the off-beat tax saving investments in the world of the Indian tax system, such as donations, it is advisable to consider popular options first. If you are looking for tax saving investments, then start with qualified instruments that help you earn deductions under Section 80C as per Income Tax Act, 1961.

All the investments covered under this section are eligible for up to Rs. 1.5 Lakhs tax rebate. Some of these include the Public Provident Fund, fixed deposits, and term life insurance, to name a few. If you want to save tax by buying life insurance, then you either consider the traditional policy or get a term policy to avail of tax deductions.

The good thing about life insurance investment plans is that it not only helps you save a lot of money in taxes but also protects your family’s financial future by eliminating the risk of the unknown. This policy will ensure that your family has the requisite finances to get by, even when you are not around!

2. Unit Linked Insurance Plans

Unit Linked Insurance Plans combine the goodness of investment plan and savings into one powerful financial instrument that caters to all kinds of risk appetites. Its life insurance component safeguards the financial interests of your loved ones, and its investment component will channel your savings into various market-linked assets to meet your long-term financial goals.

ULIPs are one of the most sought after tax saving investments that will not only save you taxes right now, but also the maturity amount will be tax-free under Section 10 (10D) of Income Tax Act, 1961.

These instruments are suitable for investors with long-term financial goals. ULIPs let you choose your asset classes as per your risk appetite and invest in the ones you are most comfortable with.

Tax Saving

3. Traditional Saving Plan

One of the best and the safest tax saving investments in National Pension Scheme that provides tax exemption as per three sections:

A) Up to Rs. 1.5L tax deduction can be claimed as per section 80C of Income Tax Act, 1961.
B) If your employer contributes 10 % of your annual salary towards the National Pension Scheme, then that amount becomes tax-free.
C) You can avail of an additional benefit of up to Rs. 50,000 as per Section 80CCD (1b).

The combined benefit of these three tax benefits makes NPS one of the most famous traditional tax saving investments. Since this a government-funded scheme, the cost is low, and the investments are transparent.

Another common tax saving investment option is bank Fixed Deposits. If your fixed deposits are locked in for five years, then you are eligible to get a tax-free income from your savings. If you are someone with a very low-risk appetite and want assured returns, the bank FDs are a great way to start. As per the Income Tax Act, 1961, you can avail of the tax benefit of up to Rs. 1.5L under section 80C.

4. Retirement Plans

Retirement plans are not just tax saving investments but a thoughtful step towards a secure future once you retire from your jobs.

However, you must choose the right pension investment plan to ensure that your life doesn’t stop even after you stop working. The right pension plan is a must-have if you want to maintain your financial independence well into your old age. If you are looking at retirement plans as tax saving investments, then you must remember to start as early as possible to benefit from the power of compounding. At the same time, planning early will reduce the burden in the latter years of your life when you are older and have more responsibilities.

Planning tax saving investments is the first step towards saving money and growing your financial portfolio with a solid investment plan.

Tax saving investments is all about understanding the financial instruments before investing. Insurers like Max Life Insurance enable you to make informed buying decisions by comparing and selecting the policies that offer maximum benefits at affordable premiums.

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