A key component of financial planning is tax savings. Investments that reduce taxes are a crucial component of financial planning for both individuals and corporations in India. Among the most notable tax-saving provisions under the Income Tax Act of 1961 are sections 80C, 80D, 80CCD (1B), 24(b), 80TTA/80TTB, and 10 (10D). Now that 2024 is here, we should begin preparing for tax-saving investments at the beginning of the year, if possible, to avoid having to scramble at the last minute.
Best Tax Saving Choices for Investors in India
Here are the 10 best tax saving options for you if you are an Indian investor.
- Fixed Deposit– Investing in tax-saving fixed deposits, which qualify for a tax deduction under section 80C of the Indian Income Tax Act of 1961, can help you save money on taxes. These FDs allow you to deduct up to Rs. 1.5 lakh from your taxes. These FDs have a five-year lock-in period, and the interest accrued is taxable. Typically, the interest rate falls between 5.5% and 7.75%.
- Unit Linked Insurance Plan (ULIP)– With ULIPs, you have the freedom to move between funds in accordance with your financial objectives. Under the Income Tax Act of 1961, sections 80C and 10(10D), you can reduce your taxes by investing in ULIPs.
- Sukanya Samriddhi Yojana (SSY)—This tax-saving investment option aims to support the well-being of girls and encourage parents to save money for their daughters’ future needs, such as college and marriage.
- Life Insurances—Section 80C of the Income Tax Act covers life insurance premiums up to Rs 1.5 lakhs. Section 10(D) provides tax-free proceeds upon death or maturity.
- Senior Citizen Saving Scheme (SCSS)– Under Section 80C of the Income Tax Act, 1961, the principal amount deposited in a SCSS account is tax deductible up to a maximum of Rs. 1.5 Lakh. Nevertheless, this exemption is limited to the current tax regime.
- New Pension Scheme– Section 80CCD of the Income Tax Act applies to contributions paid to the NPS. Together with Sections 80C and 80CCC, the total allowable deduction under this provision cannot exceed Rs 1.5 lakhs.
- National Saving Certificate (NSC)—One of the best tax-saving options, National Savings Certificates encourage investors, mostly those with modest to moderate incomes, to make investments while deducting income tax under Section 80C.
- Term Insurance Plan– This is a life insurance policy that covers you for a predetermined amount of time or the term. The specified tax-saving option gives the beneficiaries a death benefit if the insured individual dies within a specified time frame.
- Health Insurance Plan– Under Section 80D, health insurance provides tax benefits. Tax benefits are available on insurance premiums up to Rs 20,000 for seniors and Rs 15,000 for everyone else.
- Tax-Saving Mutual Funds—Under Section 80C of the Income Tax Act, investments in tax-saving mutual funds are covered up to Rs 1.5 lakhs. Under Section 10(D), proceeds upon death or maturity are exempt from taxes.
You should examine each of these investments carefully and take professional advice if required at the planning stage.