Many of us seek advice on significant tax planning from financial experts. If you ponder over the same, then we have evidently listed in this article top 5 saving instruments for tax planning for the year 2020-21. There are various parameters like returns, safety on investment, flexibility, ease, and taxability that score an important factor on tax rebates.
Tax investments are much better than keeping money idle in your savings bank account even when you do not know how long you can stay invested. Here are some best tax investments savings that you can make, that helps you save money.
The best investment instruments eligible for 80C deduction for AY 2020-21 are as follows:
” Top 5 Tax Saving Instruments for AY 2020-2021 “
- Equity Linked Savings Scheme (ELSS)
ELSS funds are by far the best way for better tax saving. When huge regular investments are made, there can be great tax gain, and reliability profited. For gain beyond Rs.1 lakh can only kick in a 10% tax. Max life insurance offers several life insurance plans that are short term financial instrument for your money and also offers tax saving benefits.
ELSS seems to be the shortest term for tax saving investments with a log in a period of only three years. The returns are not fixed and fluctuating over each year.
- National Pension Scheme (NPS)
For the annual financial year, 2019-20 national pension scheme has seen several changes in investment rules along with contingent tax rules. From this financial year, 60% of the withdrawal amount during the retirement period is considered tax free than the previous limit of 40%. A huge step forward taken from this annual financial year.
Additionally, a 75% allotment can be done for investors in equity as their choice, while previously, it was only 50%. These changes have highlighted that the national pension scheme is a better investment instrument for tax savings.
Public Provident Fund (PPF)
PPF is a great instrument for 80c tax deductions in AY 2020-21 if you are looking to save tax and invest for stable returns. The best part about PPF investments is that even after maturity, you can extend the investment at the ongoing returns if you do not need the money immediately.
The total lock-in period on investment is 15 years. One additional advantage of the investment is loans can be taken up from the 3rd financial investment year. Partial withdrawals can be made starting the sixth financial year of investment.
While the investments made from the fixed deposit and its interest are taxable, PPF is a better embodiment of flexibility and ease for tax investments.
Unit-Linked Insurance Plan (ULIP)
Unit link plan is a combination of an insurance plan with an investment. When an investment is made in a ULIP plan, the insurance company claims to invest this amount in shares and bond, the investment made is shared between debt and equity.
ULIPs are the best example of versatility and featureful investment option. ULIPs offer a single investment platform for all types of investors. Whether you are an aggressive investor looking to ride the equity wave or looking for steady returns over time, ULIPs offer a perfect blend of options to park your funds. All the while offering two benefits to all:
- Life cover protection for your investment goal
- Tax Savings under section 80C up to Rs. 1.5 Lakhs
The premiums paid for your ULIP plans are completely eligible for the tax deduction under 80C up to the limit.
One another benefit of investing in ULIP is that the income tax on the maturity of the term is also exempted under the 10(10D) section, which is advantageous either way.
One thing you might want to look into while investing in ULIPs is the withdrawal options and expense ratios. Few leading insurers like Max Life insurance offer minimal expense charges and useful withdrawal and switch options.
Sukanya Sammriddhi Yojana
This is a very good tax saving instrument that can be utilized by taxpayers with a daughter who is less than ten years of age. The interest rate on this scheme keeps on changing every quarter and is not fixed based on government bond yield rate.
One additional advantage of the Sukanya Sammriddhi Scheme is the interest earned on the investment made is tax-free just like PPF. The annual cap limit for the Sukanya Samridi scheme is Rs.1.5 lakh which can be split and investment to a maximum of two daughters accounts.
Keep Your Goals in Mind
Apart from the above best investments that can be made there are several others that you can try like the ULIP’s, pension plans, national savings certificate (NSC’s), bank fixed deposits, Why life insurance corporation for a total annual cap amount of Rs.1.5 lakhs.
It’s advisable that you diversify between different tax saving investments based on the investment risks, features, and your own financial priorities. You will be a lot more comfortable and happy with your tax saving decisions if you start early in the financial year.