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Best Tax Saving Plans Under Section 80C To Reduce Your Tax Burden

Best Tax Saving Plans Under Section 80C To Reduce Your Tax Burden

Tax saving plans

We all dream of living a comfortable, worry-free life with the ones we love. And to ensure all you dreams and your family’s long-term wishes are fulfilled, you need to build a comprehensive financial planning portfolio. Choose from the various tax saving schemes options available to secure your family’s financial future, while earning you a significant tax deduction every year.

While you work hard to earn for your family all your life, making thoughtful investments can help you get tax benefits and save your money. Tax-saving plans and investment schemes are instrumental in effectively achieving your financial goals. Depending on your needs and financial capabilities, choose a mix of long-term and short-term financial instruments and save your money in different avenues to gain maximum returns. Consider factors like safety, liquidity, and returns. While you are at it, you can reduce your tax burden by choosing tax saving plans to claim tax deductions under section 80C or section 80CCC of the Income Tax Act, 1961.

Unit Linked Insurance Plan (ULIP)

ULIPs are popular because they offer dual benefits of life insurance and investment. ULIP Plans have a lock-in of 5 years with a minimum premium amount that may vary but typically starts from as low as Rs. 5,000. The payouts under a ULIP, including the death benefits received as well as any partial withdrawals made from the policy are exempt from taxation under Section 10(10D) of the Income Tax Act subject to conditions provided therein.

Tax saving with ULIP

Public Provident Fund (PPF)

PPF is a government guaranteed investment option that provides tax benefits under section 80C of Income tax act , 1961 with fixed returns on minimum premium of Rs.500. PPF deposits have a lock-in period of 15 years and its interest rate is fixed for the fund’s term but reviewed by the government every quarter. PPF investments come under Exempt-Exempt-Exempt (EEE) category which means that apart from the principal investment, interest and maturity value is also tax-free.

Equity Linked Savings Schemes (ELSS)

ELSS offers returns with a lock-in period of just 3 years. A type of mutual fund, ELSS primarily invests in equity and can offer returns up to 12-15% along with added tax benefits. The minimum investment amount for ELSS may differ from one fund to another, but mostly can start as low as Rs. 500. The returns on ELSS funds are taxable under Long Term Capital Gains Tax above Rs. 1 lakh in a financial year.

National Pension Scheme (NPS)

NPS contributions can be invested in equities (stocks), corporate bonds and government bonds, entitling you to tax deduction under Section 80CCD. The aggregate amount of deductions under section 80C, section 80CCC and 80CCD (1) shall not, in any case, exceed ₹1,50,000. The NPS account matures at the age of 60 and you can withdraw 60% of the accumulated corpus tax-free before the maturity period. The minimum NPS annual contribution is Rs. 1,000.

Tax-Saving under the other sections other than section 80C of the Income Tax Act, 1961:

You can avail tax benefit from premiums paid towards a health insurance policy or home loan. Under Section 80D of the Income Tax Act, you can claim deduction of up to 25,000 on premiums paid towards your health insurance policy. Also, deduction up to 50,000 can be claimed on home loan interest under Section 80EE of the Income Tax Act,1961 subject to conditions provided therein.

To conclude, there are several options for you to save taxes in India. However, your investment strategy must involve the tax benefit aspect along with specific financial goals you wish to accomplish. Only thorough planning and research will help you generate and maintain wealth in the long-run. Talk to our insurance experts at Canara HSBC Oriental Bank of Commerce Life Insurance for guidance and information on various investment opportunities that also helps secure your family’s future interests.

Speak to an insurance specialist now!

FAQs Related to Tax Saving

First of all, your gross total income is taken into account and all applicable deductions/exemptions are deducted out of it, the resultant amount is the net income, upon which the Income Tax is calculated, on the basis of income tax slabs that are announced each year in the Union Budget.

How much tax you can save depends on your financial portfolio and profile. The most common avenue for tax-saving is Section 80C, which allows you deductions up to Rs 1.5 lakh in your taxable income. The implication is that you can save up to Rs 46,800*in taxes in a year, depending upon the income tax slab you belong to. Similarly, other avenues like interest on loans, health insurance etc also provide deductions capped at a certain amount.

*Tax saving of Rs.46,800/- is calculated at the highest tax slab of 31.2% (including 4% Cess) for an individual assessee on life insurance premium of Rs.1.5 lakh, who is having taxable income upto Rs.50 lakhs.

You can choose from many investments that are tax-exempt: not an exhaustive list, but includes Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), life insurance plans, Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana, Senior citizens Savings scheme, National Pension Scheme (NPS), tax-saving bank FDs.

First of all, make investment of Rs 1.5 lakh in investments instruments covered under Sections 80C to reduce your taxable income. Claim deductions for the interests paid on home loan and/or education loan if any. Get a health insurance policy and claim for other medical expenditure like preventive medical healthcare check-up, expenditure on rehabilitation of handicapped dependent relative, among others. Mainly, the idea should be finding out which tax saving avenues fit well with your larger financial goals and invest in them!

The maximum limit of investment that will reap the benefits of deduction from taxable income under Section 80C is Rs 1.5 lakh.

There is no limit to the number of tax-exempt investments one can have in a financial portfolio. However, it is important to note that there is a limit to how useful any instrument can be for the purpose. This is because the amount of deduction that can be claimed for specific instruments is capped at a maximum value. At the same time, keep your financial portfolio balanced so that it also provides safety, returns and liquidity.

First of all, make use of the Rs 1.5 lakh deduction allowed under Section 80C. This can be done by making investments in life insurance premium, Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana, Senior citizens Savings scheme, National Pension Scheme (NPS), among others.

Second, make use of the deductions available in respect of health insurance and other medical expenses. Under Section 80D of the Income Tax Act, 1961, a deduction of up to Rs 25,000 is allowed in a year in terms of the premium paid towards a health insurance policy of Self and your family i.e., Spouse and children. This can include preventive healthcare check-ups too upto Rs 5000/-. Under section 80D you can also claim additional deduction upto Rs. 25000/- (Rs. 50000 in case of senior Citizen) for health insurance of your parents.

Apart from Section 80C, various deductions and exemptions has been provided under the provision of Income Tax Act, 1961 like deduction under section 80D can be claimed for the payment of health insurance, deduction upto Rs 50,000 on home loan interest under Section 80EE. Any donations you make to charitable institutions are also allowed as deduction under Section 80G, subject to condition prescribed therein.

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