Savings from your monthly income isn’t enough to meet your desires in today’s world. Moreover, tax deductions take away a major part of your salary and you are left with even less money in hand. Therefore, people find different ways to escape from the tax deductions and enjoy their hard-earned money and put their savings in various investment plans with a ‘tax-saving’ option.
Apart from saving tax, these plans should also be used to build wealth. It doesn’t matter how much you earn but paying income tax is, unfortunately, the reality of earning income. But, you do get certain exemptions and deductions to pay less income tax and get benefited.
Various instruments can help you save tax and enhance your savings for future. Let’s know few of the instruments that can help you in tax-saving.
5 best Tax-Saving Investment Plans
- Tax-Saving Fixed Deposits
Tax-saving fixed deposits are some way similar to the fixed deposits. What differentiates the both is their money withdrawal pattern. Under a tax-saving fixed deposit, the investor will not be able to withdraw their fund for a minimum of 5 years or before the maturity of the scheme. The interest earned on these fixed deposits are tax-free, ensuring that the investor enjoys the maximum benefits.
A tax-saving fixed deposit gives you assured returns as they are not influenced by market fluctuations. This investment plan gives you the dual benefit: tax-saving as well as assured future returns.
- Public Provident Fund (PPF)
Public Provident Fund (PPF) is considered as one of the safest tax-saving investment plans as the interest earned on the deposits is not taxable. Deposits made toward a PPF account can be used to get the tax deductions. Those who invest in Public Provident Funds can fetch maximum tax savings with full safety and ease.
The tenor of PPF accounts is up to 15 years, and the investors will not be allowed to withdraw their investment before maturity. You can attain a loan against PPF only after the completion of 5-year tenor.
- Employee Provident Fund (EPF)
Employees’ Provident Fund (EPF) is another investment plan that helps a salaried individual to save tax through involuntary savings; also the interest earned is tax-free.
An employee contributes 12 percent of his/her basic salary directly towards EPF account. An employer also contributes the same percentage but only 8.33 percent is diverted towards EPF. The percentage of the money you invest in EPF qualifies for tax deductions.
Transferring an EPF account from one work profile to another is easy as you only have to withdraw the EPF money once you leave the job. The amount invested in EPF will be locked until the time of investor’s retirement. Just like PPF, the amount invested in EPF remains with the Indian government, making it a safe option for investors.
- National Pension Scheme (NPS)
This investment plan ensures a secured life after retirement by complimenting the investor with the tax-saving benefit. The investment done under a National Pension Scheme can be used as a deduction under Section 80C of the Income Tax Act of India.
The investor can withdraw the funds invested only after his/her retirement. NPS has always been a viable investment option for those individuals who are working in unorganized sector. They can stay financially prepared for the life after retirement with the help of a National Pension Scheme.
- Life Insurance tax saving investment
Life Insurance is though not a true tax-saving investment option, yet it gives dual benefit. It not only gives you a life cover that works as a financial buffer in case of an emergency but also helps you in tax-saving. The premium that is paid on a life insurance plan is deductible from your total income as mentioned under Section 80C of Income Tax Act.
There are several other life insurance plans like Term Plan, Unit Linked Insurance Plans (ULIPs), Endowment Plans, etc., that helps in tax-saving. The premium amount of Unit Linked Insurance Plans are completely exempted from taxes under Section 80C.
The Bottom Line
Among all the tax-saving investment plans, investors consider Tax-Saving Fixed Deposit at the top of their list, as they get assured returns on the investments within less period. Moreover, senior citizens can get greatly benefited by investing in a tax-saving FD as they get an additional rate of interest on FD. So, it’s time to choose the best tax-saving investment plan for yourself to enjoy the tax benefits and save more.