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The best time to start your tax saving investments is at the start of a calendar year or fiscal year. While tax planning is important, knowing all tax saving plans and choosing the right one is crucial.
Tax saving programs allow you to avoid paying more taxes and make money in the long run by investing in savings-oriented programs. Here are some of the best tax saving options with up to 1.5 lakh deduction from your income tax for the year.
Here are some tax savings possibilities:
ELSS mutual fund
Equity Linked Savings (ELSS) is a type of mutual fund that invests primarily in equity funds. ELSS offers tax advantages to investors. Investments in the program are eligible for tax deduction under Section 80C of the Income Tax Act 1961 up to a maximum of 1.5 lakh.
One can invest both through lump-sum and systematic investment plans (SIP) to benefit from the tax deduction. In this way, ELSS offers both investment and tax saving benefits.
Here are the five best performing ELSS funds in the industry:
|Funds||% return over the last 3 years|
|Quantitative tax plan||37.52%|
|BOI AXA tax advantage||30.92%|
|Mirae Asset Tax Savings||26.53%|
|Canara Robeco Equity Tax Saver||26.19%|
|IDFC Tax Advantage (ELSS)||24.54%|
Source: value research
National Savings Card (NSC)
NSC is a tax saving fixed income investment plan that you can open at any postal branch. The program is an initiative of the Indian government and is therefore relatively more secure. Investment in NSC is eligible for a deduction under Section 80C of the Income Tax Act of up to 1.50 lakh.
These certificates earn an annual fixed interest of around 6.8% per annum (revised quarterly by the government), thus ensuring a regular income for the investor. The program has two types of certificates – 5 years and 10 years.
National pension scheme (NPS)
The NPS is a retirement and investment scheme launched by the Indian government to provide old age security to Indian citizens. The program offers tax saving options to government and private employees. Anyone between the ages of 18 and 60 can invest in it. The amount invested by the depositor is invested in several systems including the equity markets. Again, the base amount of deduction offered by the fund can be up to 1.5 lakh on the same amount of investment. However, the NPS allows for an additional deduction of 50,000 under section 80CCD (1B), bringing the overall amount of the tax deduction to 2 lakh.
Unit-linked insurance plan (ULIP)
ULIP is offered by insurance companies which, unlike a pure insurance policy, offer investors both insurance and investment under one integrated plan.
Part of the premium paid by the policyholder is used to provide insurance cover to the policyholder and the remaining part is invested in equity and debt instruments. ULIP also offers a tax deduction of up to ₹ 1.5 lakh.
Here are the 5 best performing ULIP plans in the industry:
|ULIP plans from insurance companies||% of returns in the last 3 years|
|PNB MetLife – Met Pension Plus||27.40%|
|AEGON Life iMaximize Plan – Opportunity Fund||23.40%|
|Bharti AXA Life – Future Secure Pension – Growth Opportunities Pension Plus||23.30%|
|Future Pension Advantage Plan – Future Pension Active||21.80%|
|Kotak Platinum Edge – Frontline Equity Fund||21.40%|
Public provident fund (PPF)
The PPF is one of the safest investment options to start with that can help you secure your retirement and save taxes. The PPF has a minimum term of 15 years with as little as 500 to open an account.
You can open a PPF account through a post office or at any nationalized bank.
Income tax exemptions are applicable on the capital invested in a PPF account. The PPF interest rate is fixed and paid by the government for each quarter which is currently 7.1%, more than the savings rate in banks. Taxpayers can claim a maximum deduction up to ₹ 1.5 lakh.
Sukanya Samridhi Yojana
This is a small deposit program from the Indian government for parents of a daughter as part of ‘Beti Bachao, Beti Padhao’ countryside. The program encourages parents to build a fund for their daughter’s future education and marriage expenses.
The Sukanya Samridhi Yojana program offers an interest rate of up to 7.6% as well as a tax deduction of up to 1.5 lakh. The account can be opened at any post office in India or at a branch of any authorized commercial bank.
If you have taken out a home loan to buy a new home, you can also claim a deduction of up to 1.5 lakh under section 80C of income tax. The deduction can be claimed on the principal amount reimbursed during the financial year concerned. Check your mortgage loan interest certificate for EMI payment details.
However, note that even if you put more money i.e. 1.5 lakh each in any of the above tax saving options like ULIP, ELSS MF, your deduction maximum taxable income will always be 1.5 lakh in total.
However, investing in the NPS can get you an additional 50,000 deduction, bringing the overall tax deduction amount to 2 lakh.
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