How to Make Smart Investment Choices for Tax Saving

As of March 2019, around 8.45 crore people filed their income tax in India, representing an increase of 15% from 2018, according to data on the e-filing website of the Income Tax Department. One of the important aspects of filing income tax is tax saving and making the right investments can be really helpful in this. Here are some smart investment choices to help you save tax.

Equity Linked Saving Schemes (ELSS) are mutual funds in which up to 65% of the investments can be made in stocks. Under Section 80C of the Income Tax Act, these investments can offer tax benefits of up to ₹1.5 lakhs on your taxable income. ELSS has a lock-in period of three years. Also, it must be remembered that there is a degree of risk associated with these funds since they are market-linked. At the same time, they can offer higher returns, of up to 15%-18%.

Based on your risk appetite and individual requirements, the growth options and dividends can be chosen. As of April 1, 2018, a 10% tax is levied on the earnings from dividends. A good way of investing in mutual funds is through the SIP route. Systematic Investment Plans allow you to make small regular payments instead of making a big one-time investment.

Apart from providing you protection, a ULIP can also be great for savings. Unit Linked Insurance Plans allow you to invest in a variety of market-linked assets. Long term investments tend to be more fruitful in case of ULIPs. ULIPs have a minimum lock-in period of 5 years, but the period can be extended to up to 20 years.

Under Section 80C of the IT Act, the premiums paid towards ULIPs are eligible for tax benefits. The returns from these plans are also tax-exempt under Section 10(10D).

Fixed deposits are one of the safest investment options since they are not affected by market movements. The interest remains constant throughout the tenure. They also provide the option of reinvesting, allowing you to take advantage of the power of compounding.

In case your earnings from fixed deposits do not exceed ₹40,000, there would be no TDS. The limit is ₹50,000 for senior citizens. There are also certain tax saver FDs. With these, you can claim tax deductions of up to ₹1.5 lakh under Section 80C of the IT Act.

There are various ways in which a National Pension Scheme can help you save tax. The three main ways are:

1. Under Section 80C of the IT ACT, tax exemption of up to ₹1.5 lakhs can be claimed on your taxable income.
2. Additionally, under Section 80CCD (1b) of the IT Act, tax deductions of up to ₹50,000 can be claimed.
3. In case 10% of your salary is contributed towards NPS by your employer, it would not be taxed.

The key to making your money work for you is to not only make smart investments but also benefit from tax saving options.