When considering options for saving tax for this financial year, it is important to segregate the tax payer between a salaried and non-salaried person. Let’s de-tangle the nitty-gritties of both.
Salaried Employee
Tax saving investments can not only help in saving tax, but also in achieving financial goals through judicious investments.
Against the earnings column come the basic salary along with various allowances and perquisites. One important aspect to note is a clarifying judgement by the supreme-court recently making all allowances besides the basic salary to be calculated for PF contribution. Some of the tax-saving options are as below:
- Equity Linked Savings Scheme (ELSS)
- Tax saving ELSS Mutual funds
- PF and voluntary PF
- Public provident Fund
- LIC premiums
- National Savings Certificates
- Infrastructure bonds
- Five Year Bank Deposits
- Five Year Post office time deposits
- Contribution to National Pension Scheme
- NABARD rural bonds
- ULIP
- Home Loan – Repayment of Principal and Interest
- Sukanya Samriddi account
- Payment of Tuition fees
Also Read: Value Investing: The Butterfly Effect
Non Salaried Employee
- HRA, deduction on housing loans
- Senior Citizen Investments
- Section 80D for medical expenses (limits increased for 2019-20)
Expenses or investment under these heads qualify for deduction under the Income Tax Act of the country.
Best Investment Options to Save Taxes
When the prime concern lies over tax-saving, ELSS fund makes for a good choice along with a lot other like the retirement-time returns providing NPS, pension schemes for the post retirement period, senior citizens’ saving scheme for the 60 ups, Sukanya Samriddhi for tax payers with a daughter below 10 years etc but the show-stealer in today’s investment scenario is ULIP as it is the perfect amalgamation of insurance and investment that comes with a number of added benefits.
ULIPs landed its feet in the savings scenario last year after the Budget introduced tax on long-term capital gains from stocks and equity funds. Distributors and insurance companies didn’t waste much time to point out that income from ULIPs is completely tax free under Sec 10(10d). Even before the tax on capital gains was announced, ULIPs had a distinct tax advantage over mutual funds. ULIP plans not only offer equity funds but also debt and liquid fund options to investors.
Also Read: Things to know before investing in ELSS
Let’s summarize with a quick glance through a comparison chart
| SCHEME | TAX FREE RETURNS | TAX EXEMPTION ON INVESTMENT | HIGH MARKET LINKED RETURNS | LOCK IN PERIOD |
| ULIPs | YES | YES | YES | 5 YEARS |
| PPF | YES | YES | NO | 15 YEARS |
| ELSS | NO | YES | YES | 3 YEARS |
| NPS | NO | YES | YES | 60 YEARS-CURRENT AGE |
