Proper tax planning or choosing the right investment option is surely a daunting task that bothers many of us. While all of us aspire to optimize taxes, only a few smart ones succeed in the mission. The reason may be lack of knowledge/information or struggles in finding the best possible solution.
Sharing some of the best tax-saving schemes choices for 2022-23 in this article.
Insurance is a disciplined investment-cum-saving plan which ensures financial security for the family in case of any eventuality and also provides a tax-free lumpsum on maturity. By purchasing a life insurance policy, the taxpayer can avail a tax benefit as well. Under Section 80C of the Income Tax Act 1961, the premium paid towards the purchase of a life insurance policy qualifies for deduction up to Rs 1.5 lakh. Furthermore, as per Section 10(10D), the corpus received on maturity of the policy is tax-free.
ELSS (Equity Linked Savings Scheme) Mutual Funds
Like insurance, ELSS is eligible for tax deduction of up to Rs 1.5 lakh under Section 80C. Individuals who are willing to take some risk may consider investing in ELSS. These mutual funds are equity-oriented, and they invest at least 60% of their portfolio in equity and equity-linked instruments.
ELSS funds offer dual benefit of capital appreciation and tax-savings. This makes it one of the most popular tax-saving schemes amongst investors.
Public Provident Fund (PPF)
The Public Provident Fund scheme is quite popular amongst taxpayers. One of the important reasons for its popularity is the fact that PPF falls under the category of exempt–exempt–exempt tax status. A PPF account can be opened with a bank or post office.
PPF provides deduction up to Rs 1.5 lakh under Section 80C of the Income Tax Act for the amount invested during the financial year. Since PPF falls under the exempt category, the interest and maturity amount are exempt from tax. Generally, the PPF account has a lock-in period of 15 years.
National Savings Certificate (NSC)
A National Savings Certificate is a fixed income investment scheme that aims at the small and middle-income investors to invest and earn attractive returns. It’s a low-risk investment where the investors can invest as per their income profile and investment habits.
NSC qualifies for deduction under Section 80C of the Income Tax Act up to Rs 1.50 lakh.
Tax-Saving Fixed Deposit
Tax Saving Fixed Deposits are one of the most popular plans and a pretty safe investment as well. Investment in tax saver fixed deposits is eligible for deduction under Section 80C while calculating the taxable income. It has a minimum lock-in period of 5 years.
National Pension System (NPS)
National Pension System is among the tax-saving investment products with rising popularity. NPS is available to both government and private employees. It empowers the investor to build a corpus for their retirement along with a regular monthly income. It has a lock-in period until the investor reaches the age of 60.
As per the provision under Section 80 CCD, an individual can claim a deduction up to Rs 1.5 lakh. Additionally, a new sub-section 1B has been introduced, which offers extra deduction of up to Rs 50,000/- for contributions made by individual taxpayers towards NPS.
Health Insurance Premium
You can claim a tax benefit up to Rs 25,000 by investing in health insurance plans. Premium paid to keep in force the health insurance covering self, spouse, and dependent children can be claimed under Section 80D.
While planning on how to save tax, one must also recognize that the financial goal is not just tax saving. The goal needs to be investing in the best-suited investment option along with income tax saving.
Tax planning is a crucial activity, and it is essential to evaluate correct tax-saving schemes. One can save tax and earn returns if invested cautiously in some of the best tax-saving schemes. The ideal time to plan for tax-saving investments is at the beginning of a financial year. This helps ensure that one does not pay more taxes than necessary, could save taxes year-long and distribute the contribution throughout the year.
Source By : financialexpressShare: