If you consider the various investment options that help save tax in India, there is no dearth of tax-saving instruments. However, not all investment options may be suitable for all individuals. For instance, if someone does not intend to rent out their home or does not earn any rent from the property, then the home is only a personal investment.
Of the many investments people make, life insurance in India is also considered to be an saving elementwhen it comes to tax-saving ideas. It is necessary to remember that life insurance serves a more important need and should not be used only as an investment tool. If you are looking for some really good options that give you the benefit of investment and tax* savings, here are 8 investments; here is a quick guide.
Investments for the Long Term
- Life Insurance Health Riders#
Life insurance health riders# are optional benefits that you can add to your life insurance plan at an extra premium. However, this premium can help you benefit from a tax* deduction each year, especially if it is a health rider# such as a critical illness rider#. Under Section 80D of the Income Tax* Act, you can claim deductions on the health rider# premiums.
- Pension Plans
The contributions made towards pension plans under Section 80CCC provide tax* deductions of up to ₹1.5 Lakh. This contribution is the amount with which the pension plan has been purchased. Not only resident Indians but also NRIs can claim tax* deductions under this section. But if you make withdrawals from the pension before retirement, this amount will not be free from taxes.
- Mutual Fund Investments
Mutual fund schemes that pay out dividends are tax-saving instruments and will not attract any dividend distribution tax* as long as the dividends paid out each financial year are below ₹10 Lakh. If you earn capital gains after selling your equity fund units after a holding period of one year or more, these gains are tax-exempt if the amount does not exceed ₹1 Lakh per year.
- House Property
If you, as a resident or a Non-Resident Indian, own a house property and earn rental income from the house, you can apply a standard deduction of 30% on the net asset value. The net asset value is the gross rent received and does not include the property or municipal taxes you pay. This will lessen your taxable income, which can help you save on your income tax*.
Investments Under Section 80C of the Income Tax Act
- Life Insurance Policy
Though life insurance is way beyond a mere income tax saving instrument, the policy premiums are eligible for tax* benefits under Section 80C of the Income Tax Act, while the death benefits of the policy, offered to the family of the late policyholder, are tax-exempt under Section 10(10D). By purchasing an online life insurance policy, it is possible to easily access your life insurance details when you need to file your income tax* returns.
- National Savings Certificate
The NSC is a post office savings option that is less risk and offers a number of benefits. The interest rate for NSC is 6.8% per annum, and you can invest in the scheme for a period of 5 years, which is also the lock-in period. All the contributions made to the National Savings Certificate are eligible for tax* deductions up to ₹1.5 Lakh under Section 80C. The interest rate of this scheme is regularly revised by the government.
- Public Provident Funds
You can invest in a PPF for a tenure of 15 years and start with a minimum investment of ₹500. Not only are the returns on the Public Provident Fund less-risk, but they are also guaranteed1. A major tax* benefit of having a PPF account is that the interest earned up to a certain limit and the returns on this investment are non-taxable, while the contributions made towards the scheme qualify for tax* deductions under Section 80C of the Income Tax* Act.
- Equity-Linked Savings Scheme
By investing in an Equity-Linked Savings Scheme (ELSS) fund, you will be eligible for tax* benefits under Section 80C of the Income Tax* Act, 1961. In the case of this investment, you can invest as much as you want in the scheme with no upper limit restriction; however, a maximum amount of ₹1.5 Lakh will be eligible for a tax* deduction under the current income tax* laws, where you can save as much as ₹46,800 each financial year on taxes (subject to fulfilment of applicable conditions).
If you have a life insurance policy, then you will be able to claim tax* deductions as well as enjoy tax exemptions which can help you save more on taxes.
Depending on the type of investor you are and your investment goals, you can make a few investments each year to lessen your taxable income and claim tax* deductions, and save tax in India. Some options like life insurance not only offer life insurance coverage and savings and investment options but are also chosen for their tax* benefits.
Your investment portfolio should be balanced so that at least some of your investments can offer assured or guaranteed1 returns. However, there is a limit on the amount you can claim as tax deductions and so it is best to choose your investment instruments carefully before you proceed.