When you earn an income, paying taxes is mandatory. Depending on your total annual income, a significant portion of your earnings may be paid as taxes and often this may seem an additional burden.
Paying some tax is unavoidable; however, the government provides some relief through certain exemptions under the Income Tax (IT) Act, 1961. Here are some of the best investments available to reduce your tax burden.
Including life insurance in your financial plan is crucial because it is the best way to ensure the financial stability of your family members when you are not around. A term plan is an affordable way to procure higher coverage for your family. The premium paid towards term insurance is eligible for deductions under section 80C of the IT Act, 1961. You may save up to INR 1.5 lakh per annum under this tax-saver plan.
If you do not already have a term plan, it may be a good idea to purchase one in this financial year. However, it is important to buy the same from a renowned and reliable insurance provider with a high claim settlement ratio. It is advisable that you do an online comparison of different plans offered by various insurers to find one that is the most suitable as per your requirements.
Lifestyle-related medical conditions are on the rise due to unhealthy food habits, stress, and lack of exercise. Moreover, healthcare costs are on a constant rise. To ensure you do not face financial difficulty in case of an illness, buying health insurance is important.
In addition to the aforementioned advantage, health insurance is an excellent tax- saving option. The premium paid towards health insurance is eligible for tax benefits under section 80D of the IT Act, 1961.
Unit-linked investment plans (ULIPs)
ULIPs are hybrid insurance policies that combine life cover with wealth creation. Some component of the premium paid on this policy is used to offer life coverage and the balance is invested in your chosen investment vehicle. This tax-saving investment is an excellent method to secure the financial future of your family along with creating wealth over the long-term. The premium is eligible for deduction under section 80C of the IT Act, 1961 and the maturity proceeds are also tax-free.
Equity-linked savings schemes (ELSS)
These are mutual funds that invest the corpus in high-performing market instruments. However, these types of investment plans have an inherent risk because of the fluctuations in the market-related instruments. Your investment in ELSS is eligible for tax deductions under section 80C of the IT Act, 1961.
Public Provident Fund (PPF)
One of the safest tax saving tips is to invest in PPF. Your investment is not exposed to any risks as PPF is a government scheme. PPF is a popular and commonly used method to build a retirement corpus. The investment is eligible for deductions under section 80C of the IT Act, 1961.
Buying a home
You may have always dreamt of buying your own home. When you avail of a home loan, you may claim a tax deduction on the principal repayment under section 80C. Additionally, the interest is eligible for tax benefits under section 24 of the IT Act, 1961.
Now that you know how to save tax, begin early to avoid rushing at the last minute by making some intelligent tax-saving investments.