Few might have already started their tax planning from the beginning of a year, i.e. from the April month itself. However, the majority of people will start to think only at the year-end. So let us discuss what are the tax saving options, one can utilize.
1) Life Insurance-
- a) Endowment or Money Back Plans-These are the one of the oldest ways of investments used by all Indians. But do remember that these products will neither give you full life risk coverage of actually in need nor they give a better return. But at the same time if you are very much happy with the kind of coverage like Sum Assured or Rs.1, 00,000 to Rs.10, 00,000 or returns of around 6% then definitely consider this.
- b) ULIP Plans-These are again a combination of INSURANCE+INVESTMENT product. Currently insurance companies are offering these products at cheaper than what they used to be earlier. But still the drawback of such plans are-they will not fulfil your life insurance needful, tracking of fund performance is very inconvenient and if the fund is not performing then hard to come out of such plans.
- c) Term Plans-These are the pure life insurance products. You can buy the actual need of insurance very cheaply. Therefore, instead of going for above two products this is necessary for all.
Please read below posts also about Life Insurance and Taxation.
2) Public Provident Fund (PPF)–
This is one of the tax saving heaven for the few who want to get the tax deduction under Sec.80C while investing and after that exemption on interest earned as well as the maturity amount. From this financial year limit of yearly investment raised to Rs.1, 50,000. However, do remember that period of PPF is 15 years and liquidity is not so easy. Other than that if, your financial goal matches in this period, then it is best to consider the debt portion of your portfolio towards this investment.
Please read below posts also about detailed information of Public Provident Fund (PPF).
- All about Public Provident Fund (PPF)
- PPF-Loan and Withdrawal
- PPF-When to contribute to get higher returns?
- Excel PPF Calculator-Calculate goal, loan or withdrawal amounts
3) ELSS Funds–
These are mutual funds specifically meant for tax saving purpose. Do remember that there is a lock-in period of 3 years attached with such funds. Also, never be in a wrong belief that if you invest in monthly SIP then you can exit after 3 years. However, each monthly SIP is considered as new investment. Therefore, each monthly SIP needs to be complete 3 years. You can avail tax benefit under Sec.80 C of Income Tax.
Considering the equity nature of this type of investment, it is wrong to think that after 3 years you can come out easily with positive returns. Consider your time horizon of staying with these funds as more than 7+ years and invest. Otherwise, you may end up in negative earnings.
Below is few more information about such funds.
4) Rajiv Gandhi Equity Saving Scheme (RGESS)–
This is one more type of equity investment where the only new entrant into equity will be benefited and whose income is less than Rs.10 lakh a year. You can claim deduction under Sec.80 CCG. The maximum investable amount is Rs.50,000. You can claim 50% of the invested amount. This scheme allows you to invest in particular stocks, ETFs or Mutual Funds.
Detailed explanation about the same is available in below link.
5) Employee Provident Fund (EPF)–
This is one more type of indirect saving scheme. The employer usually deducts 12% of your salary towards this scheme. Your contribution is available for deduction under Sec.80 C. Advantage from this year is, limit of salary increased from Rs.6, 500 to Rs.15, 000. So whoever earning up to Rs.15, 000 must have to contribute to this scheme and by doing so you can save and invest along with that tax benefit too.
Also, if you fail to contribute then you can contribute to this scheme more than 12%, which is called Voluntary Provident Fund (VPS), by doing so you can increase your tax deduction option also.
You can read more about Employee Provident Fund (EPF) from below links.
- Employee Provident Fund (EPF) -Changed rules from 1st Sept 2014
- EPF Universal Account Number (UAN) -What it is?
- EPF (Employees’ Provident Fund) Interest rate for 2013-14
- EPF Online Transfer Claim Portal (OTCP) -Transferring is now online!!!
- All about EPF (Employee Provident Fund) advance withdrawal
- Taxation of Employee Provident Fund (EPF)
6) Senior Citizen Savings Scheme (SCSS)–
This scheme does not apply to all as it is meant for senior citizens only. One can invest up to Rs.15 Lakh only. Detailed features of this scheme are available with India Post. You can avail tax benefit under Sec.80 C. However, interest earned from, this is considered as taxable income. In addition, you can read further information from below link.
- Comparison of Senior Citizen Savings Scheme (SCSS) and Varishtha Pension Bima Yojana 2014
- Post Office Savings Schemes (RD, NSC, MIS, SCSS) -Premature closure rules
7) National saving Certificate (NSC) or Bank FDs–
Again, these two forms of savings are very much popular in India. NSC is currently available with 5 years and 10-year tenure and Tax Saving FDs at a 5-year term. You can avail tax benefit under Sec.80 C. However, do remember that the returns on these two instruments are taxable. For further detailed information on the same, you can visit below links too.
- SBI Tax Saving Deposit-Why effective yield is so high?
- NSC-Accrued Interest taxation and a way to reduce it
- Post Office Savings Schemes (RD, NSC, MIS, SCSS) -Premature closure rules
8) Health Insurance–
This one is for of safety major yourself by having health insurance and along with that, you can avail tax benefit under Sec.80 D. If you buy for yourself, spouse or children, then up to Rs.15, 000 can be claimed under this rule. Also, if you buy health insurance for your parents (whether dependent or not) then additional Rs.15, 000 deduction is available. However, parents are senior citizens, and then the limit is up to Rs.20, 000. So overall, one can save a maximum of Rs.35, 000 under Sec.80 D. You can choose plans by reading a few of my earlier posts.
- Best Health Insurance Companies in India-Based on IRDA Data
- Best Senior Citizen Health Insurance in India-Product Comparison
- Senior citizen health insurance-Apollo Munich’s “Optima Senior”
9) Home Loan–
Home loan is one more option for those who want to save tax. But what if your interest payout is more harming you than the available tax benefit? Hence, do take care of entering into this option. As this is a loan, but not an investment. There are two types of tax benefits if you opted for home loan and it is self-occupied.
- Under Sec. 80C whatever principal you pay towards loan is eligible for deduction. (Do remember that this exemption is only for residential property, only for the purchase and construction of the house, but not for renovation or repair, also if you sell the property within 5 years of availing tax benefits then the benefits availed is reversed).
- Under Sec. 24 you can avail the interest amount whatever you pay towards this loan. The limit is currently raised from Rs.1.5 lakh to Rs.2 lakh for one self-occupied property. However, if it is not self-occupied property, then there is no such limit.
Few unknown Tax Saving Tips!!!
- If you are staying in your parents house, then by paying rent and claiming the same under HRA you can save some tax.
- You can set off capital losses against capital gains. However, do remember that Short Term Capital Loss can be set off against both Short Term Capital Gain and Long Term Capital Gain. However, Long Term Capital Loss can only set off against Long Term Capital Gain.
- By donating to charitable trust, you can avail tax deduction under Sec. 80 G.
- By contributing to political parties, you can avail tax benefit under Sec.80 CCG. One can contribute around 10% of one’s gross total income.
- Expenses incurred towards your kids tuition fee can be availed as deduction under Sec.80 C. But there another section called Sec.80 E, under which you can claim deduction against the interest paid on education loan.
- You can claim deductions against expenses of stamp duty and registration expenses incurred in house property registration under Sec.80 C.
- By opting for co-ownership of house property you can avail tax benefit on your’s as well as co-owner.
However, do remember that above mentioned all options have few positive and a few negative points. So if you invest considering only tax saving options in mind, then it will actually harm you rather than improving your financial life. Hence, while opting the tax saving instrument, you must always think first of your financial goals also. If goal matches with risk, return expectation and period then go ahead for investment. Otherwise, you may be like “Na Ghara Ka…Na Ghata Ka…” 🙂