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Smart tax planning allows individuals to save on tax as well as make better investments for the future. Let us discuss the various tax saving investment options in FY 2022-23 in this post to guide you through.
Everyone planning for savings and investments for a financial year includes some tax saving options. Tax-saving is definitely a significant aspect of financial planning. With a smart strategy of tax-planning, it is possible to benefit from the dual purpose of saving tax and meeting financial goals.
Let us discuss some best tax saving investment options in FY 2022-23 to help you get a better perspective on tax benefits and meeting your future monetary needs.
Best Tax Saving Schemes for FY 2022-2023 to Maximize Tax Benefits
|Investment Options for Saving Tax||Particular Income Tax Section for Tax Deduction|
|Life Insurance||Section 80C (Premium) Section 10(10D) (Death / Maturity)|
|Health insurance||Section 80D|
|Pension Plans||Section 80CCC(sub-section under Section 80C)|
|Tax-saving mutual funds||Section 80C Section 10(10D) (Death/Maturity)|
10 Income Tax Saving Options or Financial Instruments and the Tax Deduction Sections:
- Public Provident Fund (PPF) – PPF is an instrument of investment that can be used for saving tax. This is a long term investment plus savings account which can be opened at a bank or a post office. The PPF generates a guaranteed rate of interest, while the amount is tax exempted under Section 80C for up to INR 1.5 lakh.
- Unit linked insurance plans (ULIPs) – These are long term plans which allow the insured to choose from varied funds to invest such as equity funds, debt funds etc. Further, these funds are flexible and thus the insured can switch between funds to meet your financial goals. You can avail income tax saving options under sections 80C and 10(10D) of the Income Tax Act, 1961.
- Fixed Deposit (FD) – FDs are tax saving investments which allow tax exemption under section 80C of Income Tax Act, 1961. A tax saver fixed deposit can help investors save tax of up to INR 1.5 lakh. FDs come with a lock-in period of 5 years and offer a rate of interest between 5.5% – 7.5%. However, the interest earned in a FD is taxable.
- National Savings Certificate (NSC) – NSC is a savings bond scheme which supports investors with small to mid-income to save, while allowing them tax exemptions under Section 80C. NSCs can be purchased by anyone having a savings account in a post office or bank. NSC certificates can be bought online if you have access to internet banking. Investors can buy NSC certificates for themselves or for minors.
- National Pension Scheme (NPS) – The NPS is a scheme regulated by the Pension Funds Regulatory and Development Authority (PFRDA). Any citizen between the age of 18 to 60 years is eligible for NPS. This is a cost effective scheme with low fund management charges. The fund can be managed in three different accounts, Equity, Corporate bonds and Government securities. The investment made under NPS allows tax exemption under section 80CCD for an amount up to INR 1.5 lakh.
- Health Insurance – Health insurance covers the expenses of the insured and his/her family incurred on hospitalization and other treatment caused due to accidents and ailments etc. Health insurance, also known as Mediclaim, offers tax benefits under Section 80D. The policyholder can avail up to INR 15,000 on his/her health insurance premium, while the insured is also eligible for tax benefit of up to INR 20,000 for health policies of senior citizens. The sum assured received under critical illness policies is also tax free.
- Senior Citizen Savings Scheme (SCSS) – SCSS is a tax saving investment option backed by the government for elderly people above the age of 60 years. The scheme is expected to allow a source of income to the elderly during their post retirement period. The sum deposited under the plan is tax free for an amount up to INR 1.5 Lakh as per Section 80C of the Income Tax Act, 1961 under the old tax regime. On the other hand, the interest received is subject to taxation depending on the tax slab of the policyholder.
- Pension Plans – A pension plan is a type of Life Insurance that aims to secure an individual and his family after retirement. With a pension plan, an individual secures his old age along with securing his dependents after he is retired. The sum contributed towards pension plans are tax exempted for an amount up to INR 1.5 lakh under Section 80CCC, which is Section 80C sub-section. One-third of the maturity pension is tax free, while the rest two-third is taxed at a nominal tax rate. Upon death of the beneficiary, the amount received is considered tax free.
- Life Insurance – A Life Insurance policy ensures the financial security of the family of the insured during a time when the insured is not around. Be it traditional Life Insurance policy or an ULIP, each plan allows tax saving options on the premiums paid by the insured under Section 80C for up to INR 1.5 lakh. Maturity or death benefit received under a Life Insurance plan is also tax-free under section 10(10D). There are several Life Insurance plans available, such as Term plans, Endowment plans, ULIPs, Money back plans etc.
- Tax Saving Mutual Funds – These funds are called the Equity-Linked Savings Scheme (ELSS) and they allow tax benefits under Section 80C for up to INR 1.5 lakh. The amount invested under this scheme has a three year lock-in period and it is invested on high risk funds. Further, the corpus received on death and maturity of the investor is tax-free under Section 10(10D).
How to plan tax deductions for a year?
The start of the financial year on April 1 marks the beginning of the tax saving year for individuals who are on salary or those who are non-salaried tax payers. With a good investment portfolio, not only can a person save on tax via tax deduction but can also earn income that is tax-free.
Hence, it is better to start planning for tax benefit investment funds from the start of the financial year, rather than waiting for the end. If you do not plan your tax deductions meticulously from the early quarters of a financial year, you may lose out on saving enough tax or getting maximum returns.
As seen above, most investment plans that allow tax-saving come under Section 80C of Income Tax and allow exemption for up to INR 1.5 lakh. Depending on their needs, investors can choose varied tax saving plans to invest on.
Tax savings by single, unmarried investors/single income couples/ single income parents
For single unmarried people in their 20s or 30s, or single income couples or single income parents where only one family member is earning can invest in the below tax saving options:
- ELSS or Equity Linked Savings Schemes
- Market-linked investment options with EEE benefits, such as ULIP, ELSS, Child Plans etc.
- ULIPs or Unit Linked Insurance Plans
- PPF or Public Provident Fund
- Term insurance cover (with over 20 times of annual income as sum assured)
Couples with children must also remember that they can claim tax deduction on child higher education loans under section 80E and can claim tax deduction for tuition fees under section 80C.
Savings plans available for parents with dual income sources
A family with double income sources can claim over INR 8.5 lakh in deductions by making prudent investments and insurance. The options include:
- The couple can together save up to INR 3 lakh under 80C
- Can buy term plans individually with SI equal 20 times of their annual salary
- Can allocate 20% income annually towards market-linked investment with EEE benefits such as ULIPs, ELSS, Child Plans, etc.
- Can invest in Public Provident Fund (PPF)
- Invest minimum 10% of income in pension plans such as NPS and other Pension schemes.
Tips to save better for future
Here are some tips to remember:
- Parents may note that they can claim tax deduction on school fees
- Parents must start investing in child plans
- Investing in property is another option for tax savings. You can avail tax benefits on home loan
- Also, mediclaim or health insurance cover is another option that allow tax deductions
Tax saving plans for retired senior citizens
Here are some points to remember:
- Senior citizens can opt for annuity schemes for regular flow of money after retirement, which are tax saving options, such as SCSS
- They can opt for annuity plans to save tax and generate income
- ULIPs also serve as a option for fund generation after retirement and allows exemptions under Section 80C and 10(10D)
Read more: Best Long-Term Investment Plans with High Returns
To Sum Up
As seen above, tax saving investment options benefit policyholders in different ways. Hence, if you are planning an investment, go for the ones allowing tax exemption benefits. Hence, you must consider the tax saving plans mentioned in the post above.
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FAQs on Tax Saving Investment Options
How many tax-free investment instruments can an individual have?
There is no limit to buying tax-free investments. Individuals can purchase as many investments to save tax as they want. However, it is important to note that there is a certain limit of tax deduction which needs to be maintained while claiming tax benefits.
Is there any maximum limit of investment under section 80c?
Yes, Section 80C of the Income Tax Act, 1961 set a maximum limit of investment at INR 1,50,000 from the total taxable income of the insured.
How to reduce tax legally?
To reduce tax legally, one must invest in the various government approved tax-free investment instruments.
Can I reduce my taxable income? How?
Below are few ways to reduce taxable income in India:
Invest in instruments allowing tax deduction that are listed under Section 80C of Income Tax Act
Claim the tax deduction investments to save on tax
If you have a home loan, avail tax deduction on it
Death benefit or maturity benefit amounts received under Life Insurance plans are exempted from tax
Section 80D of income tax allows a portion of health insurance to be exempted from tax. Further, premiums paid for senior citizens health insurance also come under tax deduction.
What tax exemptions are available in India?
The Income Tax Act allows several tax exemptions and deductions to taxpayers including deductions under Section 80C and Section 80D, standard deductions, house rent allowance, leave travel allowance and so on.