When it comes to investing in tax saving schemes, your mantra should be: The sooner, the better. We explain how you can save tax in the new year.
There is a mad scramble to file your taxes at the close of every financial year. It is a chaotic process that results in a loss of both time and money. Your accountant might ask you to make fresh investments in a bit to save tax. It is always better to get a proper start on saving tax through the means of investment in tax saving schemes.
There are many sections of the Income Tax Act, 1961 which provide tax exemptions under Sec 80C, 80D, 80CCF, 24D, 10(10)D and others. For the purposes of this article, let us focus only on tax saving plans that are covered under Sec 80C and 80D.
Consider the following tax saving schemes you can invest in the coming year:
* Unit Linked Insurance Plans (ULIP). This is a fund that offers capital appreciation as well as life coverage for the insured. It is an excellent instrument for those looking to mitigate risk on the markets, and who desire the flexibility to invest as little or as much as they wish. The ULIP provides tax benefits upto Rs 1,00,000 under Sec 80C.
* Tax saving fixed deposit. The fixed deposit has long been a popular tax saving scheme for many an Indian. However, with the possibility of losing income due to the interest payable on large deposits (if interest earned is over Rs 10,000) more and more buyers are gravitating towards the tax saving FD option. The tax saving FD has a minimum period of 5 years and the interest is exempt from taxation under Sec 80C of the Income Tax Act, 1961.
* Life and health insurance plans. If you haven’t already, this is the year to finally invest in good life and health insurance plans. Both these plans are essential to offset the financial repercussions of a lack of income due to illness/injury/demise, or footing expensive medical bills in the case of an illness. You also get tax benefits up to Rs 1,50,000 under Sec 80C for life insurance, and up to Rs 25,000 per year under Sec 80D for health insurance.
* Public Provident Fund (PPF). The PPF is another favourite tax saving scheme that offers guaranteed returns over investment. It has a lock-in period of seven years counting from the date of starting the PPF. After 7 years, you may partially withdraw the funds deposited in the account till then. The PPF matures upon completion of 15 years. You can deposit as little as Rs 500 per year in the fund. The tax benefit is available under Sec 80C.
* Equity Linked Savings Scheme (ELSS). The ELSS is an excellent instrument combining the benefits of savings with future wealth creation. You can claim up to Rs 1,00,000 exemption for ELSS investment under Sec 80C. It is a diversified equity mutual fund with tax benefits and good returns, with the money being invested in high grade equities. It offers both dividend and growth options, thus covering every kind of investor.