When planning for your future, you must have had to make a decision between simply saving your money in the bank or investing with the mindset of reaping the long-term benefits. Much of that decision must have been based on your income and expenses. The thought of market risks can be daunting to most people but it is unwarranted. Moreover, with inflation being a very real threat, investments are the more prudent.
An annual income of more than 2.5 lakh rupees warrants that you pay income taxes. But under Section 80C of the Income-tax Act, you can claim a tax exemption of Rs 1.5 lakh. In simpler words, you can reduce Rs 1.5 lakh from your taxable income by investing them in various financial products under this act. Of the many investments that you could choose from, listed below are four of the most prudent ones –
Best Tax-Saving Financial Products
Equity Linked Savings Scheme (ELSS)
An essential tool for anyone looking to effectively manage his taxes, ELSS is an equity fund that allows investors to generate exceptionally good returns. Of all the equity funds, it has the shortest lock-in period of 3 years. Also, it provides great flexibility to the investors in terms of funds with minimum monthly investment being quite low, as low as Rs 500. It is also open-ended, meaning that you could access it any day and by opting for SIP, reduce risks substantially. You can also continue with your minimum payments every month for as long as 15 years.
National Pension Scheme (NPS)
Introduced first for government employees in the year 2004, it was extended to the private sector in 2009. Firstly, payments of Rs 1.5 lakh offer tax exemption under Section 80C. Under Sec 80CCD (1b) NPS offers an additional deduction of Rs 50,000. Furthermore, if your employer pays 10% of your salary in your NPS, that entire sum will not be taxable. With a lock-in period, it discourages premature withdrawals, which is ideal for the goal of retirement savings. You can invest up to 75% in equity. Or if you opt for the life cycle fund, then you can invest up to 50% in equity which will minimize exposure of your funds as you grow older.
Unit Linked Insurance Plans (ULIPs)
ULIPs are the smartest choice you can make when investing in tax-saving schemes. It has the dual benefits of a life insurance and an equity fund. With its returns being tax-free and the projected gains being quite high, it is the shrewdest investment to make. You can start with debt market linked units but can change it to equity if the market moves positively upward and attain much higher rewards. Only a ULIP allows such flexibility without the disadvantage of any tax on the capital gains. It allows you to choose your mix when investing.
Public Provident Fund (PPF)
An investment option where your interest rates are linked to your bond yields. The rate of interest is revised every year on the 1st of April and is based on the 10 year government bond yield of the preceding year. The deposits can vary from Rs 500 to Rs 1.5 Lakh. You could choose to deposit the same as a lump sum or over 12 installments. At the time of investment, you will get a deduction on it, with the income that it generates also being tax exempt. Even your withdrawals shall be free of tax. PPF as a saving scheme to subsidize your child’s education or the purchase of assets is an excellent option.
Different people have different needs and aims for their future. You need to choose the financial plan that best suits your goals and ambitions.