The tax-filing season every year is filled with trepidation for salaried people. It is the same old drill of investing hastily, trying to save taxes at the last minute. Since your sole objective is tax saving, the investment decisions made as a result are neither sustainable nor prudent.
Being a taxpayer in India, you must educate yourself about the prevailing tax slab and various tax saving investments to help you save your money the right way. It will help you choose the right investments that can not only be tax saving but also help you fulfil your long-term and short-term goals.
However, this process can become highly complex if not done in advance. Here are some of the tax saving options available for salaried people.
1. Employees’ Provident Fund (EPF)
EPF is one of the most trusted tax saving options for salaried people. As per this scheme, the employee and the employer must contribute 12% of your salary to the EPF account. Upon making these contributions, the employees receive interest amount at a certain rate defined by the government.
Tax saving in EPF comes in the form of tax exemption on the provident fund amount accumulated in the account. When you finally withdraw this sum, the amount along with the interest will be tax-free for you.
2. Public Provident Fund (PPF)
PPF is also a tax saving option for salaried people that offers you a tax-free return on your investment. PPF is a great way to build a corpus of funds that earns you guaranteed returns and can be used for your retirement.
It falls in the EEE category, which is exempt-exempt-exempt. It means that the amount you invest in PPF is eligible for tax deductions u/s 80C. Additionally, the amount you accumulate along with interest is also tax-free.
3. Equity Linked Savings Scheme (ELSS)
ELSS is one of the most popular tax saving options for salaried people. The investments you make in this scheme are eligible for tax deductions u/s
80C of the Income Tax Act. ELSS gives you the dual benefit of offering you tax benefits and a higher return on your investment.
4. National Pension Scheme (NPS)
NPS is a long-term tax saving investment that is managed by the Central Government of India and PFRDA. It is the perfect instrument for people who are planning to get early retirement and want to invest in a low-risk financial product.
They provide you with a higher return compared to PPF and FDs. However, they are not as tax-efficient as their counterparts. You can claim tax benefits u/s 80 CCD(1) up to Rs. 1.5L and u/s 80CCE.
5. Fixed Deposits (FDs)
A tax saving fixed deposit is one of the safest investment options for salaried employees. You can claim deductions up to Rs. 1.5L under section 80C. FDs come with a lock-in period of 5 years that help you create short-term wealth and also encourage you to save diligently. However, the returns earned on your FD are taxable.
6. Health Insurance
Every individual, salaried or otherwise, must add health insurance to their portfolio. It is an important tax saving investment. But most importantly, it protects you against the ever-increasing medical costs associated with life-threatening diseases.
When you buy a health insurance policy, you also get to enjoy the tax exemption benefits u/s 80D of the Income Tax Act. You can avail up to Rs. 25,000 per policy for the premiums paid every year. This deduction is applicable on premiums paid for policy for self, spouse, and dependent children.
7. Term Insurance
This is one of the most basic life insurance products that offer expansive life cover at a low cost. Other than affordable premiums, you also enjoy term insurance tax benefits u/s 80C of the Income Tax Act. Term insurance policies offer deduction up to Rs. 1.5L towards the premiums paid in a given financial year. The death benefit received by the policy nominee is also tax-free.
8. Unit Linked Insurance Plans (ULIPs)
ULIPs are one of the most sought after tax saving instruments that give you insurance as well as investment benefit in a single plan. The premium you pay for ULIPs is partially used to fund your life cover, and the other half of it is used for debt and equity funds as per your risk preference. The premium paid towards this policy is eligible for tax deduction u/s 80C. Moreover, the returns earned upon maturity are also tax-free u/s 10 (10D).
These are some of the most common tax saving instruments that a salaried individual can add to their investment portfolio. However, when purchasing a policy, make sure you have thoroughly checked the benefits and features. Reputed insurance providers recommend using online tools to
assess the feasibility of the investment in the long-run before committing to it.