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Best Tax Saving Plans in India

Save money today, and money will save you one day “, this Jamaican quote rightly describes the value of saving every penny in today’s life as unforeseen situations can arise anytime. Tax planning can be one of the major ways through which you can save your income and accomplish your long-term goals.

The Indian Income Tax department has set regulations under which you can avail tax deductions and exemptions on various investments you make during an ongoing financial year. However, there are certain terms and conditions that you should be aware of before going ahead with your tax-saving calculations. Read on to know more.

Income Tax Saving Acts of India

The Indian Income Tax department offers several sections under the Income Tax Act, 1961 wherein you can claim deductions in a financial year.

  • Section 80C allows tax deductions on your taxable income over the investment of INR 1.5 lakhs.
  • Section 80D allows a maximum deduction of INR 1 lakh on the medical insurance of the taxpayer and his family.
  • Section 80EE allows tax deductions up to INR 50,000 on home loans.

 

Best tax saving schemes in India:

The above-mentioned section gave you an idea about how much savings can be done under which category. However, you should also be aware of all the tax-saving schemes available in India so that you only choose the best one for yourself.

Here’s a list of the best plan to save tax in India:

1. Public Provident Fund

Public Provident Fund is a reliable and popular tax saving scheme in India. This saving plan is managed by the central government, therefore, the risks of losing the capital are low and guaranteed returns are promised. Many consider PPF to be the best plan to save tax in India, as it offers good tax deductions under section 80C and also falls under the EEE category. The PPF account has a tenure of 15 years and the interest earned under this account is tax-free.

2. National Savings Certificate

National Savings Certificate is a government-organized tax savings scheme launched for the citizens to make easy investments and claim tax deductions. National Savings Certificate schemes are available under all government-managed NCS post offices which is why they can be availed easily. This is a low-risk plan that offers guaranteed returns and tax deductions to the taxpayer under section 80C.

3. 5-year Bank Fixed Deposits

One of the best tax saving plans to avail deductions under section 80C is the 5-year bank fixed deposit plan. Very Similar to the regular fixed deposit schemes this plan comes with a lock-in period of 5 years which means the investment made cannot be withdrawn during this period. This FD plan offers higher interest rates and is more liquid than EPF or PPF.

4. National Pension Scheme

The National Pension Scheme is an investment plan that comes with several benefits to help you accomplish long-term goals and save for your retirement. This scheme which is also considered the best plan to save tax in India is preferred due to its low premium amounts and special features like a partial withdrawal facility.  Also, this scheme helps you in wealth creation by investing your money in market-linked instruments but the interest earned can differ according to the ups and downs.

5. Unit Linked Investment Plans (ULIP)

ULIPs are tax-saving plans that offer combined benefits of both investment and insurance for the assessee. This is a long-term investment plan that is eligible for tax deductions under section 80C of the Income Tax Act. Also, the income earned at the maturity period of the plan is exempted from tax.

6. Equity Linked Saving Schemes (ELSS)

ELSS is considered one of the best savings plans because it offers tax deductions as well as higher returns, both in the same plan. This scheme is linked to equity-based mutual funds that are said to give superior returns up to 15% in the long term. The returns and capital gains received from ELSS are tax-free and there are numerous other benefits added to the plan.

7. Senior Citizen Saving Scheme

This scheme is specially designed by the government for elder people who are above 60 years of age. The individuals investing in the plan can claim tax deductions under section 80C and enjoy quarterly returns too.

8. Medical Insurance Plans

An individual who has purchased a medical insurance plan either for himself, family, or both can claim for tax deductions under section 80D in order to pay the premiums. The maximum limit up to which deductions are allowed is INR 1 lakh if senior citizens are included in the plan too.

9. Life Insurance Plans

Life insurance plans are a necessary insurance policy for all individuals and this is also a tax saving scheme. The premiums made for life insurance plans are eligible for tax deductions under section 80C of the Income Tax Act. These plans provide a lump sum amount to the insured individual’s family in case of his sudden death. The death benefit is tax-free.

Tax saving options are available under section 80C

The table given below mentions the best tax saving plans available under section 80C:

Tax Saving Plans

Estimated returns Lock-in period
Public Provident Fund (PPF) 7-8%

15 years

5-year Bank Fixed deposit

6-7% 5 years
National Savings Certificate (NCS) 7-8%

5 years

National Pension System (NPS)

12-14% Up to retirement
ULIP Depends on the plan selected

5 years

ELSS funds

15-18%

3 years

Senior Citizen Saving Scheme (SCSS)

7.4%

5 years

 

Other investment options

Investments

Under Section Maximum deduction
Medical Insurance plans 80D

INR 1 lakh

Home Loan

80EE INR 2 lakhs
Charity 80G

Nil

Education Loans

80E

No limit

 

How to choose the best tax-saving plan for yourself?

Now that you have read about all these schemes, you might have decided which is the best plan to save tax in India. However, here’s a step-by-step process that you can follow if you are still confused:

1. Understand the plans:  Read carefully about all the deductions available under each section. You can take the help of your financial consultant to know more about these schemes.

2. Make the calculations: Calculate the total amount from your previous investments (if any) and subtract it from your taxable income. If you are still not falling under the non-taxable slab then you need to invest more.

3. Choose wisely: Choose a suitable scheme while considering your future goals, current financial situation, and other important factors like liquidity, lock-in period, etc.

4. Tenure is crucial: Never overlook the tenure of the scheme, as plans with longer terms give higher returns.

5. Analyze the returns: Finally, carefully analyze the post-tax returns that the scheme will offer and make your investment.

Conclusion

There are numerous investment methods that can help you save a lot on your income tax. However, choosing an investment scheme that gives all benefits and no losses can be a difficult task. To find out the best plan to save tax in India for yourself it is important that you first analyze your personal and financial needs and estimate your goals.

No investments should be made just to earn higher returns and tax deductions as this can cause a financial crisis at present. Consulting financial experts, doing foolproof research, and linking your goals to the scheme should be done, ideally to select the best tax-saving plan for yourself.

 

 

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