Did you know that Delhi and Maharashtra alone contribute 53% of India’s total income tax? In 2019, an increase in the tax exemption limit was expected, but no changes were made. This has greatly affected the common citizen, particularly the salaried class. However, if you follow a disciplined approach and begin investing early in life, you can reap the benefits of various tax savings options.
Here’s a look at some efficient tax-saving instruments you can choose from.
Mutual Funds
Investments in Equity Linked Savings Scheme or ELSS are mutual funds that are eligible for tax exemptions under Section 80C of the Income Tax Act, 1961. This section eases the tax burden and allows individuals to claim exemption of up to ₹1.5 lakhs on their taxable income. ELSS has a lock-in period of 3 years, which begins from the date of investment. This is an ideal option for anyone looking for long-term wealth accumulation. However, ELSS also involve higher risks than debt funds. So, make sure you educate yourself before making an investment.
Fixed Deposits
Fixed deposits are a great tax saving instrument, which helps in steady wealth creation. Investing in an FD makes you eligible for tax deductions up to ₹1.5 lakhs, under Section 80C of the Income Tax Act. Fixed deposit is a tried and tested instrument for generating stable returns. If you are investing for the first time, FDs are the safest way to start. Choose a bank that offers a good rate of interest for your tenure. Although fixed deposits can usually be withdrawn only on maturity, you can break the deposit midway in case of emergencies.
Senior Citizen Savings Account
The Senior Citizen Savings Scheme is for all Indian citizens above the age of 60. Most banks offer up to 7% interest rate on this type of savings account, but it can go up to 8% too. Since it is a government initiative, the terms and conditions are uniform across all banks, public or private. The most important benefit is tax deductions of up to ₹1.5 lakhs under Section 80C. However, if the earned interest exceeds ₹50,000, TDS will be applicable.
Unit Linked Insurance Plans
ULIPs are a mix of savings and protection and also offers excellent income tax benefits. The insurance company puts a part of your investment into life insurance and the remaining into market-linked assets like mutual funds. This ultimately helps in long term wealth creation. Apart from this, the premium that is paid is eligible for tax exemptions of up to ₹1.5 lakhs per year, again under Section 80C. Additionally, the maturity amount is free of tax, under Section 10(10D).
Make sure you choose an investment option depending on your financial goals and risk appetite. To meet your requirements, read all the terms and conditions and tax savings options carefully.
