Growing their money as much as possible tends to be one of the significant priorities of almost every person. The two crucial ways with the help of which people can efficiently build their bank balance, and save income tax are by identifying schemes and smartly investing their money.
No person likes to pay taxes. However, the majority of people earning more than 2.5 lakh per annum in India would have to pay a certain percentage of income tax. Hence, a significant number of individuals search for effective ways to save on tax payments, as well as investment options through which they can generate good tax-free income.
There are several statements and clauses present in the Income Tax Act of 1961 that allows people to enjoy tax exemptions on specific plans and financial products. According to this act, Indian citizens can avail tax-saving benefits by investing in various business and financial settlement products offered by the government Several renowned insurance companies, banks, as well as investment agencies operating in the nation offer various financial plans and products that have tax exemption as an added benefit.
High Return Investment Options
Here are some of the best investment options where to invest money for tax saving available in the country:
1. Equity-linked savings schemes (ELSS)
This is a type of diversified equity mutual fund. As per the Section 80C of the Income Tax Act, 1961, the amount of money invested in these funds would qualify for a tax benefit, up to a limit of Rs 1.5 lakh in a single year. The sum of money invested in ELSS has a lock-in period of 3 years. These mutual funds necessarily have superior liquidity prospects in comparison to NSCs and public provident funds. However, the returns on ELSS are wholly dependent on the equity market performance, and hence,these returns are neither fixed nor assured. People can invest in either the dividend or growth option of the ELSS. The dividend option is considered to be ideal for someone desiring a regular income. The growth variant is better suited for people having long-term investment goals.
2. United linked insurance plan (ULIP)
ULIPs is a great method for tax saving. ULIPs are distinct hybrid products, considered to be a combination of savings and protection. In addition to providing life insurance, these plans help people to channel their savings into distinguished market-linked assets that can help them to meet their long-term investment goals. Assets incorporated in such a plan are ideally distributed among equity and debt. As a tax saving instrument, ULIP helps investors to enjoy benefits of the money that has been linked to diverse assets and put into various markets while giving them an advantage of risk cover. These plans typically have 15 to 20 years time span and can be extended by five years after the completion of the initial maturity period.
3. Public Provident Fund
For several decades, the Public Provident Fund (PPF) Scheme has been one of the most favored options for investing money and saving income tax. The principal and the interest amount earned through this scheme imperatively have a sovereign guarantee, and its returns are absolutely tax-free. This benefit is enjoyable due to the statement coming under Section 80 of the Income Tax Act of 1961. It undoubtedly mentions that the principal investment made in PPF would be liable to tax deductions. Much like the ULIP, PPF also has a duration of 15 years, after which the investor can extend it as per he or she wishes for five more years. PPF is considered to be ideal for investors who do not want instability in returns similar to distinct equity class assets. PPF is an extremely safe investment option.
4. Employees’ Provident Fund [EPF]
This is another productive avenue that helps salaried individuals to both save on tax by involuntary savings, as well as build up the tax-free corpus. In this system, an employee contributes 12% of their basic salary every month to their EPF account in a mandatory fashion. An equal share is provided by the employer as well. However, only 3.67% of it goes to the EPF. While the contributions of the employee qualifies for tax benefit as per the Section 80C of the Income Tax Act up to a limit of 1.5 lakh per annum, the employer’s share does not. However, both the employer and employee share does qualify for interest as declared by the government per year, which primarily is tax-free.
5. Sukanya Samriddhi Yojana (SSY)
SSY is a part of the ‘Beti Bachao Beti Padhao’ initiative of the central government of India. SSY is a small deposit scheme meant for a female child. One can open a Sukanya Samriddhi Account anytime after a female child is born until the age of 10 years. A minimum deposit can make this account of Rs.1, 000 and an additional deposit of a maximum amount of Rs 1.5 lakh to it in an ongoing financial year. This account would remain operative for twenty-one years after its opening, or till the marriage of the girl after she crosses the age of 18. As of now, Sukanya Samriddhi Yojana fetches an interest rate as high as 8.4% and also offers one of the best tax-free returns with a sovereign guarantee in the nation. The SSY scheme comes with a distinct exempt-exempt-exempt (EEE) status.
In addition to the plans as mentioned above and financial products, several traditional insurance policies provide great tax-savings. Whole life plans, as well as money-back or endowment schemes, can be considered to be traditional insurance, and are quite popular avenues for tax saving. Unlike the typical pure term insurance plans, these policies are incorporated with an element of savings and usually come with a fixed sum and a fixed term assured. Premiums of such policies depend on the extent of life coverage, age of the insured at the time of investment, and the period for which the coverage would be needed. Payments towards these plan premiums are until its maturity.
When planning to put their money in distinct tax-saving investments, the investors must take into account the factors of liquidity, returns, and safety. By making the ideal choice, investors can be doubtless of consistently growing their money while enjoying advantageous tax-benefits. Making prudent investments is considered to be one of the most convenient ways to build a right bank balance and secure the financial future. While spending their hard-earned money on tax can be bothersome for many; due to the Section 80 C of the Income Tax Act they can enjoy several investment options that offer tax exemption benefits and are liable to garnering lucrative tax savings interest income.