Saving taxes is on the minds of many. If you are one of them, know that there are a few ways you can use to save taxes while also earning other benefits.
Here are eight tax-saving instruments you can include in your portfolio to earn tax exemptions.
Getting a life insurance plan is a way for you to get financial security for your family and loved ones. There are various types of life insurance policies available today, such as term insurance and whole life plans. You can choose any of these policies to not only protect your family from future uncertainties but also save taxes. Life plans like term insurance can be a way to earn tax exemption. Under the old tax regime, you can claim an exemption of up to Rs. 1.5 lakhs per year for the premium you pay into the plan.
Another important type of insurance that one ought to have today is health insurance. Healthcare costs can burn a hole in your pocket if you are not prepared to face them. Even if you choose to dip into your savings to bear the brunt of unforeseen healthcare costs, it may end up upsetting your plans and rebuilding your finances will then take up a long time. Instead, you can get a health insurance plan. It will help you face any health emergencies without worrying about your financial situation, while also allowing you to save on taxes.
Fixed deposits are one of the most low-risk investment options. You can easily create a fixed-term deposit account with your bank. The duration of these accounts can be as low as seven days. This makes them ideal for people who want to park their money for a small while, want to create an emergency fund, or want to achieve short-term goals. However, if you want these deposits to work as a tax-saving instrument for you, you may have to create an FD for a minimum period of 5 years. The maximum exemption you can claim for a fixed deposit account is Rs. 1.5 lakhs.
National Pension Scheme (NPS)
If you are looking to create a retirement plan, you can start with a National Pension Scheme, or NPS. It is a voluntary contribution pension scheme offered by the government. Indian citizens between the ages of 18 and 70 years of age can opt for these plans. Contributions can start as low as Rs. 6000 for Tier-I NPS accounts. This is a type of retirement plan that can also be used as a tax-saving instrument. You can claim up to 10% of your salary (basic plus DA) as an NPS contribution. The maximum amount you can claim as an exemption per year is Rs. 1.5 lakhs.
Public Provident Fund (PPF)
This is a savings plan offered by the Government of India. The minimum contribution you can make to this account is Rs. 500 per year, whereas the maximum amount you can pay into this fund is Rs. 1.5 lakhs. The fund matures after 15 years. In addition to using this as a long-term savings and growth plan, you can also use this as a tax-saving instrument.
Senior Citizen Savings Scheme (SCSS)
This is another scheme offered by the Government of India for people to create a retirement plan. The minimum and maximum limits for making contributions to this scheme are Rs. 1000 and Rs. 15 lakhs respectively. As the name suggests, it is available for people over 60 years of age, i.e., senior citizens. The interests are paid out quarterly and the maturity period of the scheme is 5 years. The scheme can be used by retirees as a tax-saving scheme as well. An exemption of up to Rs. 1.5 lakhs can be made for this scheme under Section 80C.
Unit-linked Insurance Plan (ULIP)
ULIP plans are often categorised as life insurance plans. However, these plans tend to be more than that. They also offer you wealth creation opportunities through investment. Thus, not only are you able to create financial security for your loved ones, but you are also able to build a corpus to fulfil the long-term goals that you may share with your family. Furthermore, ULIPs can also be used as a tax-saving plan. The premiums you pay for ULIPs (up to Rs. 1.5 lakhs) can be used to earn tax exemptions.
Equity-linked Savings Scheme (ELSS)
Equity-linked Savings Schemes are a way to invest in mutual funds. They usually have a lock-in period of three years, making these plans suitable for people who may be looking for a short-term investment plan. In addition to being an investment option, you can also use ELSS to save taxes by earning tax exemptions on your contributions to the scheme.
Know that tax exemptions are only applicable if you have opted for the old tax regime. If you have shifted over to the new tax regime, you will not be able to claim any exemptions. These eight instruments can help you save taxes if you are continuing with the old tax regime.