With the sky high-rise in the economy, having an ample amount of savings in an individual’s backend is extremely crucial. Saving money in day to day life is a great asset to deal with uncertainties of life and keep oneself secure and financially sound in trouble time.
Although there are many ways to save your hard-earned money. Tax-saving is also counted as one of an important part of financial planning. Tax- saving can be strategized intelligently and can serve the objective in both ways by helping the individuals to meet their financial goals and in that process help them to save taxes. To save your hard-earned money on taxes you can either invest your money in insurance or growth plan or put them in saving instruments for the future.
By using the various allowances provided by the employer’s one can also save on taxes. Investment plans are a typical contrivance where one can pay today and reap the benefit later. But apart from this investment also include many more advantages. With the help of some of these tax saving investment plans you can win a lot of tax saving.
- Life insurance-
In any individual financial portfolio, Life insurance plays a major role. In case of any unforeseen situation or emergency, it offers security to the individual’s family. Thus it becomes a major responsibility to have a life insurance policy for the security of the family. Any Life insurance plan whether it ULIP (market-linked) or endowment (traditional), offers tax benefits on the premium paid to the policyholders. Life insurance undercovers various plan.
- Term Plans
- Endowment plans
- ULIP plans
- Money-back plans
Despite the characteristics of the Life insurance plan, it offers tax-saving benefits to the policyholder. Under section 80D of the Income Tax Act, a maximum of Rs 1.5 lac premium paid for life insurance are covered. Under section 10(D) the proceeds on death/maturity are tax-free. If the policy is terminated or surrendered within five years of the policy tenure then deduction claims are added to income tax and tax accordingly.
- Pension Plan-
This is another form of life insurance. The pension plan serves with a divergent end-objective called a protection plan and is non-identical from other insurance plans like an endowment plan and term plan. As in the protection plan, it provides financial backup to the individual’s family on his demise similarly in the pension plan the individual and his family get the benefit in case the insured lives on. The tax exemption benefit under section 80CCC is limited to Rs 1.5 lac only as per current rule. On maturity, the only 1/3rd of the accumulated pension amount is tax-free with the balance 2/3rd treated as income and taxed at the marginal tax rate. The amount is tax-free upon death beneficiary.
- Health insurance and Mediclaim-
Health insurance or mediclaim as popularly known provides financial protection and cover expenses accrued from accident or hospitalization. Mediclaim also covers pre and post-hospitalization expenses, subject to the sum assured. The medical insurance offers tax benefits under section 80D. Insurance premium eligibility for tax benefit for senior citizens is up to 20,000 and 15,000 is for others. Under critical illness policy maturity value is tax-free for sum received. The policyholder can claim tax benefit of Rs35,000 if he/she pays a premium of Rs15,000 on his own policy and Rs20,000 for his parents a senior citizen.
- New Pension Scheme-
The Pension Funds Regulatory and Development Authority regulates the New Pension Scheme or NPS. Any Indian citizen within the age group of 18-60 years can participate in this. The NPS is extremely cost-effective since funds management charges are low. The money is managed in three separate accounts by fund manager having distinct asset profiles namely equity (E), corporate bonds (C) and government security (G). Investors can choose to manage their portfolios actively or passively. The contribution made to New Pension Plan are covered under section 80CCD of the income tax act. Under section 80CCD along with section 80D and 80CCC, the aggregate limit of tax deduction cannot exceed Rs1.5lac. With the given range of options, NPS is particularly useful individuals who are looking to set aside money towards retirement.
- Tax saving mutual funds-
Tax saving mutual funds or the equity-linked saving scheme is an investment plan qualified for tax benefits. This plan is more suitable for investors with medium and high-risk appetite, among other assets the tax saving mutual funds are invested in the stock market. Under this, the investment is locked in for three years. Under section 80 C of the Income Tax Act, the investment towards tax saving investments fund is covered up to a maximum of Rs1.5lac.