Tax planning is an essential aspect of your life as it helps you to accomplish your financial and business goals with ease. However, many Indianstend to worry about paying their taxes and according to a report published in February 2020, only 2.5% of them pay their taxes regularly. Paying taxes is beneficial as it goes towards improving the economy and civic infrastructure of the country.
To help individuals reduce their tax liabilities and also to promote investments, exemptions are offered on various tax-saving financial instruments. Consequently, choosing the right mix of investment tools can allow you to reap these benefits and reduce your tax liability.
Below is a list of the top-three, best tax-saving investments to match your financial needs:
As an investor, you might look at mutual fund schemes to earn high returns; but what about the tax on mutual funds? If you’re looking for tax-saving investments in mutual funds, you can opt for Equity-Linked Savings Scheme (ELSS).
ELSS funds are tax-saving mutual funds that invest a majority of their corpus in equity and equity-related instruments. These investments provide individuals with tax benefits under Section 80C of the Income Tax Act, 1961. For instance, you can reduce your taxable income by up to Rs. 1.50 lac by investing in these funds. Additionally, if held for over three years, any capital gains up to Rs. 1 lac would be exempt from tax, while gains above this threshold would be taxed as long-term capital gains (LTCG) at 10%.
Unit-Linked Insurance Plans (ULIPs)
Many investors tend to choose investments and insurance plans separately. A ULIP bridges this gap by offering the benefits of insurance and investment under a single roof. It is a combination financial instrument that lets you safeguard your family members as well as participate in the capital markets.
Apart from its dual benefits, it is also considered as one of the most effective tax saving investments. With ULIPs, you can claim tax deductions on the premium paid as well as the maturity amount under sections 80C and 10(10D), respectively. While Section 80C lets you reduce your taxable income by Rs.1.5 lac, Section 10(10D) offers tax-free maturity payout to your family members in the unfortunate event of your demise.
We require a significant corpus to live a comfortable lifestyle after retirement. Many Indians usually retire between the ages of 55-60 and their income flow typically stops or is reduced substantially. Therefore, choose retirement plans to ensure a stress-free retirement period without financial constraints.
Retirement plans are an essential part of your tax planning process. Since they offer exemptions under Section 80CCC, you can use these avenues to save on taxes. Whether you purchase a retirement plan from insurance or a mutual fund company, it is an excellent tax-saving instrument either way.
In a nutshell, tax-saving financial instruments are an excellent way to reduce your tax liability. So choose between these three investment tools wisely to ensure you save more money. Conduct thorough research on different tax-saving investments before finalizing on one. Happy investing!