Become familiar with the best tax saving investment practices for a smarter financial plan

Savings are your financial support for tomorrow and every wise person tends to save money. While it’s surely harder for some people to even save a penny, there are people who have built their whole fortune with the help of savings plans.

The money you save today can be used to purchase your dream car, support your child’s further education, or help you start a business. As the requirements of your family grow with time, your savings will make sure you can fulfill their needs.

Saving encourages you to sacrifice a small portion of your income for the betterment of your future. However, taxes become the unnecessary middlemen that take away a significant portion of your saved capital without helping you in any way.

Taxes can be extremely overwhelming, especially for people who have started earning recently. Fortunately, there are several tax saving investments that you can use to escape paying taxes that involve investing your money in various savings plans as stated below:

Unit Linked Insurance Plans

If you want a long-term tax saving investment plan that provides you good returns in addition to tax-saving benefits, a unit-linked insurance plan is certainly a perfect match for you. It also offers you death coverage, along with the benefits of investments in the equity and debt market.

The returns you gain from the market-linked products of ULIPs are completely free from taxes. They are fairly good for a savings timeframe of 10-12 years. It is one such tax-saving instrument that allows you to switch between debt and equity at any time.

Equity-Linked Tax Saving Scheme

With a lock-in period of only three years, the equity-linked tax-saving scheme is considered one of the most effective tax-saving investment plans for people looking for short-term saving opportunities. This savings plan offers good returns through equity funds.

Moreover, you can start investing in this plan with an amount as low as Rs. 500. Unlike a ULIP, pension, or insurance plan, you’re not bound to continue investing your capital after the end of the lock-in period. By investing in this plan for a specified time, you can gain good returns.

Infrastructure Bonds

For people with a fixed recurring income, infrastructure bonds act as very efficient and risk-free tax saving investments. These are offered by companies that work on infrastructural projects, approved by the Government of India.

It offers a good rate of interest in addition to various tax-saving benefits, and an individual can invest up to Rs. 20,000 in these bonds. Under section 80C of the Income Tax Act of India, the investment and the returns are eligible for tax deductions.

These bonds are available for all Indian residents but are kept limited to one application per person. This allows you to predetermine your savings not only for tax exemption but also for a financially secure future.

Tax Saving Fixed-Deposits

There are several types of fixed deposit tax saving investments that provide tax benefits and exemption under section 80C of the Income Tax Act of India. These plans allow you to claim tax deduction benefits of up to Rs. 1.5 lakhs.

The funds are locked in for a period of five years, and only the residents of India and Hindu Undivided families are eligible for investments in tax-saving fixed deposits. Keep in mind that the tax benefits offered are only applicable for the interest earned on your investment.

Talking about the interest, it is earned on either a quarterly or monthly basis, which can also be reinvested as per your preferences. To avail of the tax-saving benefits of FDs, you need to submit a 15G or 15H form to the bank in case you’re an adult or senior citizen respectively.

The interest rates offered in this savings plan differ from bank to bank. If you are looking for a last-minute tax-planning investment, this is surely something of your interest too. Therefore, make sure that you check it out.

New Pension Scheme (NPS)

If you are looking for a savings plan that allows you to plan for your retirement and also provides you tax-saving benefits at the same time, then new pension schemes are surely the perfect choice of investment for you.

These savings plans are known for their low-cost structure, flexibility, and investor-friendly features. The minimum amount of capital required for these plans is Rs. 6000 with monthly premiums as low as Rs. 500. Alternatively, you can also choose to pay your premiums in a lump sum.

It also allows you to choose from numerous market-linked investment options such as equity, corporate bonds, or gilts. This helps you build your own portfolio and grow your money along with tax-saving benefits as well.

Public Provident Funds

A lot of people consider public provident funds as a highly preferable option for tax benefits as per the norms of section 80C of the Income Tax Act. It is a long-term savings scheme that requires a lock-in period of fifteen years, with an optional extension of five more years.

The annual investment limit for this plan is Rs. 1.5 Lakhs, and you can apply for this savings plan through your nearest post office or bank. You can invest as low as Rs. 500 and as high as Rs. 1.5 Lakhs in multiple premiums or as a lump sum amount.

If you’re somewhat hesitant from taking risks, aren’t already registered in any kind of employee provident fund, and are a self-employed person, this investment plan is surely a good choice for you to save money on taxes.

The Takeaway

Now when you’ve learned about the various tax saving investments that can be used to avoid paying taxes, it is time to take action and save your hard-earned money from getting carried away by taxes. The savings plans listed above help you generate a good corpus of money in addition to tax-saving benefits.