Best Investment Plans to Save Taxes

As a kid, we all used to enjoy the end of a session, but as a grown up, the closing time of a year is no less than a hassle. The excitement of getting new books, new class is now replaced by the hustle bustle and the strenuous efforts that are put in to save the hard earned cash. Therefore, most of us dread to reach that part of the year.

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Most people tell themselves “I will cross the bridge when it comes”. But this attitude is the one that puts you under immense pressure. Therefore, people who procrastinate their tax planning, land in a big time confusion and chaos. Never make temporary rules in order to save your taxes or make an ill-conceived goal

A strategic financial planning will help you to save the last minute rush of running to your doctors to get your original medical proofs. There are a lot of people who try to find out the best tax-saving investments at the last moment. 

Without any doubt, an ad-hoc tax planning will certainly help you save your taxes. However, this temporary planning will not be able to add on to the goals that you have set for different stages of life. Here, we have picked up the best ways that will help people who have left their tax-saving plans for the last moment. 

In order to choose the best tax-saving plan, you need to look for the following points that are mentioned below: 

  • Check out the amount of deduction you can get from your gross income

  • Figure out the fresh investments for saving taxes you need to make further

  • Figure out the type of instrument you need for saving your taxes

  • Figure out the tenure of your investment

  • Taxes levied on income that you gain from your investment 

After picking out a solution of all these, you need to find the most feasible instrument for tax-saving that you can link with your long-term goal. 

How Many Deductions can you Avail?

There are certain investments and expenses that allow the investors to enjoy tax deductions as per Section 80 C. This implies that investors can enjoy tax exemptions, if they earn a gross total income of Rs 1.5 Lakhs from their investments. 

The investments that are eligible to get tax exemptions are life insurance, Public Provident, National Savings Certificate (NSC), Equity Linked Savings Schemes (ELSS) mutual funds, etc. Moreover, Tuition fees, principal repayment of home loan, and others can be included under the expenses as well as income outflows. 

Fresh Investments you Need to Make

If you are perplexed of what all is going around, then sit back and relax.  

Take baby steps and find out whether you actually need to make a new investment or not. So, the first step is to get acquainted with all the deductions offered under the Income Tax Law: 

Non-Section 80C Deductions:  The first step is to figure out all the deductions under non-Section 80 C. For instance, interest levied on health plans, home loans, educational loans and others. 

Section 80C Outflows: Then look at the expenses related to Section 80C-related. For instance, tuition fees, repayment levied on a home loan, premiums on pure term insurance plans. 

Existing Section 80C Commitments:  If you are planning to invest in endowment life insurance and Employees' Provident Fund (EPF), then you need to check the commitment made by existing laws of Sections 80 C. 

After practicing these steps you will be able to figure out all the commitments offered by Section 80C, 80 D, as well as other deductions. 

In order to find out the taxable income, you need to subtract the deductions from your gross total income. This calculation will finally decide whether you need to go for any further tax savings or not. If after subtracting the deductions your net income is: 

  • More than Rs. 2.5 Lakhs- Go for further investment for tax-saving

  • Less than Rs. 2.5 Lakhs- No need to go for any further investment 

Further, if you have not surpassed the limit offered by Section 80C, look for investments that are eligible to avail exemptions offered by Section 80C. 

At a Glance: 

S. No. Insurance Plans Tax Benefit Under Section
1 Life Insurance Section 80C (Premium) Section 10(D) (Death / Maturity)
2 Pension Plans Section 80CCC(sub-section under Section 80C)
3 Health insurance/ Mediclaim Section 80D
4 NPS Section 80CCD
5 Tax-saving mutual funds Section 80C Section 10(D) (Death/Maturity)

Kind of Tax-saving Instrument

Investments that are eligible to leverage the benefits offered by Section 80C investments have two options: 

  • Investments that offer fixed as well as assured returns

  • Investment with market-linked returns 

Investment plans that offer fixed returns comprise debt assets, including notified bank deposits. Plus it offers a minimum time period of five years, PPF, endowment life insurance plans, NSC, SCSC (Senior Citizens Savings Scheme), and several other features.

This plan offers fixed returns for the complete duration and is in accordance with the rates that exist in the economy. Further, the returns are close to the inflation as well.  These investment plans are best for those investors who do not aim at wealth creation, but to preserve their money. The 'market-linked returns' type is mainly the equity asset class. The policyholder has the leverage to pick from the Unit-Linked Insurance Plan (ULIP), pension plans ELSS of mutual funds and the NPS.

Though the plan does not offer assured returns, it is linked to the performance of the assets such as debt or equity. In the long run, these plans can create higher returns that are adjusted according to the inflation rate. 

Term

All the tax-saving tools fall primarily under medium to long term range. For instance, the lock-in of an ELSS is three years and that of PPF is 15-years. Moreover, you need to pay annual payments for a quite longer period in case of life insurance plans.

The ball is in your court! 

Ideally, one needs to start their tax planning at the beginning of the year itself.  You need to know the fact that rushing about your financial planning is not a wise idea. Haste might end you up in picking up a wrong product. As everything comes with a cost, you won’t be able to find a product that offers high and assured returns and also helps you to save your taxes. So, choosing a product totally depends upon your discretion. 

You may also like to read: Top Investment Plans with Low but Guaranteed Returns

Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer. Tax benefit is subject to changes in tax laws. *Standard T&C Apply

Past 5 Year annualised returns as on 01-03-2024

^Tax benefit are for Investments made up to Rs.2.5 L/ yr and are subject to change as per tax laws.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.

Tax benefit is subject to changes in tax laws. Standard T&C Apply
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ

^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

#The lumpsum benefit is calculated if policyholder invested ₹10000 monthly for 10 years in the fund with a policy term of 20 years. This Point To Point past performance data of last 10 years has been used to illustrate a scenario for the customers benefit. It is assumed that the past 10 years returns would have also been delivered in last 20 years. This is not guaranteed and not in anyway indicative of what the customer may actually get 20 years from now. The investment is subject to market risk and the risk is borne by the policyholder.

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