How to Avail Tax Benefits through Your Investments
Tax planning can be scary for some people. While there are various ways to save tax by investing in different schemes, many people tend to put it for later only to go frenzied at the last minute. It is not something we recommend. If you have not invested in saving tax, start planning now.
You can get tax benefits under Section 80C or 80CCC depending on the type of your investment. The tax saving period starts on 1st April and ends on 31st March of the consecutive year. If you have already planned your tax, there is nothing to worry about. Yet, you can still read through to find new ways to save tax for the next year.
Investment safety, liquidity, and returns are three major factors to consider when considering the tax saving schemes. You should also check whether the returns will be taxed or exempted. Most of the schemes get exemption under 80C. But the maximum eligible amount is Rs. 1,50,000/- per person. All investments such as insurance, ELSS (Equity Linked Savings Scheme), PPF (Public Provident Fund), FD (Fixed Deposit), NSS (National Savings Scheme), Home loan repayment, etc. together will save you up to rupees one lakh and fifty thousand.
National Pension Scheme (NPS)
NPS is undoubtedly one of the best tax saving schemes. Why? Because you can save tax under three different sections. Apart from 80C, you can get an additional deduction of Rs. 50,000/- under Section 80CCD (1b). If the employer contributes 10% of the basic salary to the NPS scheme, the amount will be exempted from tax. But, at the time of maturity, only 40% of the total amount is tax exempted. And, you cannot withdraw money before your retirement (with very specific exceptions). Also, you will have to invest 40% of the corpus in an annual equity plan to earn a monthly taxable income. The scheme is transparent and backed by the government. So it is considered safe by many people.
Unit Linked Investment Plan (ULIP)
One way of knowing how to save tax is by investing wisely to get maximum returns over a long period. The investment in ULIP is tax exempted under 80C, and the returns are tax-free under Section 10(10D). The lock-in period is of five years. You have numerous plans to choose from. But remember that ULIP is a market-linked fund. The returns depend on how well the market is performing.
Beyond 80C
Apart from Section 80C, you can gain tax benefits on home loan interest and premium paid for health insurance. Section 80D provides you a deduction of Rs. 25,000/- towards the payment of premium for health insurance. Section 80EE allows you to claim up to Rs. 50,000/- on home loan interest.
If your existing investments already provide you the 1.5 lakhs benefit, you will not have to invest again. This is exactly why we always suggest planning at the beginning of the financial year. It will give you enough time to reassess your investments and make better plans for the future.
