Each year salaried individuals need to declare their investments to their respective companies to determine the TDS or Tax Deducted at Source. TDS is where your company based on your investments and tax declaration will deduct the funds from your monthly salary. Many people will declare a lot of investments which they might not go through with and pay tax in bulk at the end of the financial year. Those who invest only do it as another source of tax deduction and do not put in any real effort or thought into it.
This mentality of going for a tax saving scheme just to pay less tax is wrong. These investments can provide great returns which could be very useful in the future. Investments should not just be about tax saving but also provide the following benefits
1. Maximum Tax Savings
2. Great Returns
3. Minimum Risk
4. Low cost to investment
If an investor is not looking for these factors, then there is no point in investing at all.
We decided to help our readers/customers by compiling some of the tax saving investment options out in the market which cater to the 4 factors mentioned above.
1. Life insurance
Life Insurance is not a pure form of tax saving investment, but it gives multiple benefits to the investor. Life insurance provides dual benefits where at the time of maturity the investor will receive the funds with interest and save on tax where the Life Insurance under section 80c of the income tax act you can get exemption of up to Rs.1,50,000. Also, in case of alternate payout to the beneficiary under section 10(10D) is nontaxable. There are also many types of Life Insurance to choose from
a) Term Plans
b) Endowment Plans
c) Unit Linked Insurance Plans or ULIPs
d) Money Back Plans
2. Equity Linked Savings Scheme (ELSS) mutual funds (Non-Taxable for 2017 to 18 not for 2018 to 19)
This is one of the best savings scheme to get high returns in a short period of time, but risky as it is based on the market conditions. The lock in period for ELSS is only 3 years compared to others. It is one of the most sought-after investment scheme. Though there will be a tax of 10% on ELSS schemes from FY2018 – 19, it is a great option to save on tax for FY2017 – 18. The tax deductions come under section 80c which has an upper limit of Rs.1,50,000.
3. Fixed deposits
One of the oldest and traditional form of investment. It is risk free and falls under section 80c which has an upper limit of Rs.1,50,000. To get tax deduction you need to opt for a 5-year plan, which means you cannot utilize the funds for 5 years. You also need to remember that the money deposited will be tax free only for the year the Fixed Deposit was started, and the interest gained at the time of maturity is taxable.
4. Health Insurance
Many might not agree that health insurance cannot be considered a tax saving investment as you do not get any returns unless used to claim medical expenses incurred. We believe that the health of your family is important and to make sure your family is protected you need health insurance. With health insurance you do get tax exemption under section 80c for health insurance premium.
5. Public Provident Fund (PPF)
It is a form of long term investment option with a lock in period of 15 years through which you can get tax benefits under section 80c to a maximum of Rs.1,50,000. It is one of the highest pre-tax return providing scheme. Once the 15 years are over you can extend the account to an additional 5 years. The minimum annual deposit required is just Rs.500.
6. Employee Provident Fund (EPF) and National Pension Scheme (NPS)
It is mandatory for the employer to set aside 12% of each employee’s salary equaling basic in the form of EPF. The employer also needs to match the EPF with an equal contribution of their own with 8% of the basic in the form of NPS and the rest 4% as EPF. The funds set aside from the employee’s salary will get 100% tax exempt under section 80c up to a maximum of Rs.1,50,000.
7. Home Loan
Home loans are also a source of tax deductions with the principle paid can be claimed under section 80c, while the interest paid can be claimed under section 24 of the income tax act. A home could provide you at least double benefits through the following ways
One, where you have your own house and you don’t have to pay rent.
Two, you can rent it out and get another source of income, but income is taxable.
Three, you can get tax benefits which can be maximized by taking a joint home loan where each member of the group will get the maximum tax deduction of Rs.2,00,000 under section 24 and Rs.1,50,000 under section 80c.