Reduce Your Tax Burden by Choosing the Right Investment Plan

One of the major things people look for, other than investment options, is ways to save taxes. Come the end of the financial year, everyone starts looking for ways to save their taxes by all means. They do this by looking for The Right Investment Plan that will help them save money. Choosing The Right Investment Plan helps in reducing the tax burden. This is a legally approved way to save on taxes, commonly known as tax planning. However, reduce your tax burden by choosing the right investment plan is essential.

It is a good practice to know about the Tax Planning for The Right Investment Plan irrespective of the time of the year. One should not wait for the end of the financial year to make investments. You can Reduce Your Tax Burden by Choosing The Right Investment Plan from the start of the year and enjoy the benefits to the maximum.

In this article, we will talk about the importance of Choosing The Right Investment Plan so that you can enjoy the optimum benefits.

Importance of Tax Planning for the Right Investment Plan

Tax planning is paramount to have a stable financial portfolio. However, people tend to move towards tax planning only when they have to show their investment proof. This is not ideal. Doing Tax Planning for The Right Investment Plan should always be a priority. The right investment plan helps you optimize and save your hard-earned money.

Choosing The Right Investment Plan is not easy, but with the right set of mind and research, one can achieve their goal of saving maximum amounts in tax. You can do this by closely evaluating all the options available in the market and not settling for the easiest option available. You can choose from an array of options like ULIPs, EPFs, PPFs, Senior citizen savings schemes, PO deposits, home loan repayments, education loan repayments, etc. All of these options provide great tax savings avenues.

You can save up to RS 56,000 (on Rs.1,50,000 deductions under Section 80C) by Choosing The Right Investment Plan. Investing in health insurance plans is one of the best examples to Reduce Your Tax Burden by Choosing The Right Investment Plan. By investing up to Rs. 35000 in health insurance, you can claim tax benefits under Section 80D. Other investment options that help in tax savings under Section 80D are life insurance, SIPs, FDs, and PF.

When can you Start Tax Planning for The Right Investment Plan?

The earlier you start, the more you can Reduce Your Tax Burden by Choosing The Right Investment Plan. The ideal time, however, is the start of the Financial year. Tax planning at the end of the financial year is not recommended as people often choose in a hurry to save whatever they can in a limited time. Moreover, people generally face cash flow constraints at the end of the year.

Therefore, the best time you can choose Tax Planning for The Right Investment Plan is the start of the year. However, if you are unable to start investing at the start of the year for whatever reason, the next best thing things is to look for instruments that can be issued in a set time frame. They serve as the relevant proof for your investments, thus helping you save money on taxes.

Before you start Tax Planning for The Right Investment Plan, you should look for plans that offer great value to your financial portfolio along with tax-saving benefits. It is essential to know details about all the investment plans that fall under Section 80C as almost all the deductions that we can claim fall under the 80C section of tax saving schemes.

How can you Save Tax?

It is essential to know all the options available to enjoy maximum tax savings. You can look for important information from IT ACT (1961). IT ACT 1961 is a portal packed with all the relevant information on tax saving and tax paying. It is a legitimate source to know all about tax planning. You can learn about Tax Planning for The Right Investment Plan from this portal, along with some other popular sources available online. Apart from the common sources, there are some unpopular choices to look for while looking for tax-saving avenues. 

Reduce Your Tax Burden by Choosing The Right Investment Plan Under Sections 80 C and 80D

Instruments falling under Section 80C include:

  • PPF ( Public Provident Funds)
  • Life Insurance
  • Unit Linked Insurance Plans (ULIPs)
  • Health Insurance
  • Pension Plans
  • SCSS (Senior Citizens’ Saving Scheme)
  • ELSS (Equity Linked Savings Schemes)
  • NPS ( New Pension Scheme)
  • Bank Fixed Deposits
  • NSC(National Saving Scheme)

Let’s talk in detail about all these plans.

1. Public Provident Funds (PPF)

Public Provident Funds are great examples of Tax Planning for The Right Investment Plan. They add great value to your portfolio. Your contribution towards PPF earns interest at the rate of about 8.7%, which is tax-free. However, you can avail of tax deductions under PPF schemes only if you contribute up to Rs.1lac.

2. Life Insurance

The amount paid for any life insurance, whether for yourself or your family, is liable for a tax deduction. The minimum policy term should be 5 years. The important thing here is that the returns from the life insurance are also nontaxable.

3. Unit Linked Insurance Plans (ULIPs)

By choosing the UPLIPs, you are Choosing The Right Investment Plan. They offer investment benefits along with life cover. The premium amount that is left after deducting the cost of life cover is used for investing in debt and equity instruments.

4. Health Insurance

One can claim the tax deductions against their health insurance under section 80D. You can claim the tax deductions on the premiums that you pay for yourself and your family. You can claim a deduction up to Rs 20,000 for senior citizens and Rs. 15,000 for anyone else.

5. Pension Plans

One can opt for retirement schemes from mutual fund companies and pension plans offered by an insurance company. Both of these plans provide similar tax benefits, but the amount received after retirement is liable for tax. 

6. Senior Citizens’ Saving Scheme (SCSS)

People above 60 years of age or those who have opted for voluntary retirement and are above 55 years could invest in the Senior Citizens’ Saving Scheme. There is a lock-in period of 5 years, which can be extended by 3 years. You can get returns up to 9.2% under SCSS, but the interest earned is taxable.

7. National Savings Certificates (NSC) 

Bank Fixed Deposits and National Savings Certificates are some of the best investment plans. They are safe and are cost-effective. They are also available easily, hence anyone can buy them without much difficulty. The only crux is the lock-in period of 5 years; anyone who is comfortable with a long lock-in period should invest in NSC and FDs. Both of these investments are very liquid, meaning they can be readily used for raising loans, etc. If you compare the interest rates with PPF, interest earned via FDs is higher, but the income is taxable.

8. Equity-linked Savings Schemes (ELSS)

Investing in ELSS or Equity-linked Savings Schemes is a 360-degree investment. The return on this investment is substantially higher than any other form of investment. However, there is a risk factor involved as well. The lock-in period for ELSS is 3 years, which is the shortest among any other type of tax-saving investment.

9. New Pension Schemes (NPS)

New Pension Scheme funds have been able to perform well in the last few years. The E-class finds returns are in line with the likes of corporate bonds, and NIFTY, and have given returns in double digits. Along with Section 80C deductions, the contributions by an employer on behalf of their employee can also be claimed for tax deductions under Section 80CCD. The only problem with New Pension Schemes is that this investment is locked till the investor is 60.

10. Fixed Deposits (FDs)

Fixed deposits are one of the best ways to save taxes under section 80C. You can claim an amount up to Rs. 1.5 lakhs by investing in Fixed deposits. The lock-in period is 5 years and interest earned is taxable. The rate of interest is usually 5.5% to 7.75%.

Reduce Your Tax Burden by Choosing The Right Investment Plan – FAQs

What is tax planning to reduce taxes?

Ans: Tax planning means planning your finances for tax efficiency. It aims to reduce one’s tax liabilities and make the optimum use of tax rebates, tax exemptions, and benefits as much as possible. Tax planning also includes making business and financial decisions to minimize tax spending.

Can you save tax by investing in shares?

Ans: Investments that you can hold for up to 12 months (Long-term capital gains) are tax-free. Investments that cannot be held for 12 months (Short-term capital gains) are taxed at 15% + 3%. Any capital loss incurred after the offset is carried forward up to eight financial years.

How can to reduce the tax rate in India?

Ans: You can save income tax by following these points:

  • Investing in products applicable under section 80C.
  • You can claim a deduction on your House Rent Allowance.
  • Investing in Health Insurance.
  • You can claim a deduction on your home loan interest.
  • Never empty your savings account.
  • Contributing to charity.

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