Tax preparation is an important aspect of financial discipline for a working individual. Salaried persons often consider tactics and investing instruments to avoid taxes on their earnings twice a year: during the fourth quarter of a fiscal year and at the beginning of a fiscal year.
When a new fiscal year begins, businesses require their employees to file an investment declaration, for which they must present confirmation of investments made during the final quarter of the fiscal year.
Tax experts believe that tax preparation should not be done at random and should not be left until the beginning or end of the year. Doing last-minute tax preparation may lead to poor investment selections on your behalf. A well-thought-out tax-saving investment plan not only saves your hard-earned money but also helps you comply with income tax regulations.
If you’re looking for tax-saving investments, there are several possibilities on the market. Tax-saving products like as NPS, PPF, ULIP, ELSS, and Sukanya Samriddhi Yojana are quite popular among taxpayers.
Top 5 Investment Options
1. National Pension System
NPS is a popular investment choice because of its much greater returns when compared to other investment plans. Subscribers have access to a variety of investment alternatives as well as pension funds.
NPS provides extra tax benefits by allowing taxpayers to save taxes under three distinct parts of the income tax code. Section 80CCD(1) allows for a deduction on contributions up to Rs 1.5 lakh. Section 80CCD(1B) allows an extra deduction of up to Rs 50,000. Finally, Section 80CCD(2) provides extra tax benefits to workers for investments made via their company.
2. Public Provident Fund
PPF is a savings-cum-tax saving investment vehicle that allows you to establish a retirement fund while saving on annual taxes. PPF now provides a 7.1 per cent yearly interest rate. It is one of the most popular long-term tax-saving investments available today, providing tax deduction benefits under Section 80C up to a maximum of Rs 1.5 lakh per year. A PPF subscriber can pay the money in one lump sum or in many instalments during the fiscal year. It is a strategy with three components: tax savings, returns, and safety.
3. Unit-Linked Insurance Plan
A ULIP is an insurance plan that provides both the benefit of money growth to help you achieve long-term goals and life insurance to safeguard your family financially in the case of an unexpected incident.
ULIP is regarded as more flexible than NPS since it does not have a lock-in period until retirement, and it also allows for periodic withdrawals. One downside is that the policyholder is locked with the insurance firm for the remainder of the term, whereas under NPS, the investor can choose the pension fund management. Section 80C of the income tax regulations allows for a tax deduction of up to Rs 1.5 lakh on premiums paid for a ULIP.
4. Equity-linked savings scheme
ELSS is a form of mutual fund, often known as a tax-saving mutual fund, that allows taxpayers to claim a deduction of up to Rs 1.5 lakh per year under Section 80C of the Income Tax Act of 1961.
ELSS has a three-year lock-in period, allowing investors to generate better returns while saving money on taxes. It also allows an investor to invest either lump amount or via the SIP method. ELSS is subject to a 10% long-term capital gains tax on unit redemptions, but if the total gain is less than Rs 1 lakh, it is tax-free.
5. Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana (SSY) has long offered a greater rate of return than other savings schemes. SYY, which now has an annual interest rate of 8.2 per cent, was created to provide financial stability for female children.
Like the PPF, the interest received is tax-free, and the investment has an annual ceiling of Rs 1.5 lakh. An SSY account has a payment duration of 15 years and a minimum maturity date of 21 years. Annual tax deductions of up to Rs 1.5 lakh are permitted for SSY premiums.
