New Year has already begun, and we are only a few months away from the closure of the current financial year. If you are a salaried individual, your company’s finance team members may ask you to submit the proof of tax-saving investments at any moment now. You might have seen experienced peers at work working on ways to avoid excess TDS. However, if your annual salary falls into the taxable bracket for the first time, you may not know what to do.
As per the Indian tax system, your tax liability is calculated based on the tax slab your total income falls into. Also, there is a minimum threshold for zero tax liability, which at present is fixed at INR 2,50,000, meaning you don’t have to pay any tax if your income is below this limit.
For higher annual income, you are liable to pay income tax as per the slab rates. However, you can reduce your tax liability to zero by allocating a part of your earnings to some of the best tax saving investment options.
These options come with dual benefits – tax saving on one hand, and good returns on the other.
Let’s dig deeper to know more about a few tax-proof investment options you can choose to increase your savings:
- Single-Premium Life Insurance
If your parents, spouse and children depend on your income for a livelihood, you must cover your life with a suitable life insurance plan. It ensures that your family members won’t face a financial crisis in your absence.
EEE tax benefits make life insurance one of the best tax saving investment options. It means you enjoy exemption on three things, namely, the premium you pay, the returns you get as well as the maturity benefits of the life cover.
By investing in these plans, you can get tax benefits under Section 80C of the Income Tax Act up to INR 1.5 lac. There are certain limitations related to tax deductions in case you choose single premium life insurance. You are eligible to claim tax deductions only if the sum assured on the selected plan is at least ten times the premium you pay for it.
- Health Insurance
The risk of health problems has increased considerably in India. You never know when a medical emergency would take you or your family members by surprise. To be safe than sorry, buying health insurance with adequate coverage is no less than a necessity.
Health insurance plans cover your medical expenses related to hospitalization and critical illnesses wherein the chosen insurer pays the bills as per the policy terms. It also allows you to avail tax benefits under Section 80D.
The quantum of the deduction is fixed at a maximum limit of INR 25,000 on the health insurance premiums you pay you to pay towards a policy that you hold in your name or that of your spouse and children. You get an additional tax exemption of INR 25,000 for the health plans purchased for parents under the age of 60 years. However, if your parents are over 60 years of age, then you will enjoy an exemption of up to INR 50,000.
- ULIPs
Investing your money gives returns while buying life insurance comes with life cover. What if you get both these benefits with a single investment?
Yes, it is possible with Unit Linked Insurance Plans, also known as ULIPs. These are one of the best tax saving investment instruments to cover your life while also helping you create wealth. Based on your risk appetite, you can modify your portfolio between debt and equities.
In terms of tax deductions, the premium you pay towards a ULIP is tax exempted under Section 80C. Also, the maturity benefits of the plan are eligible for tax deduction under Section 10(10D).
- Term Plans
Your family’s financial security lies in your hands. You never know your exact life expectancy. But you can plan for the odds by buying term insurance and keep your family prepared for life’s uncertainties. It is a pure protection plan that gives assured life cover at an affordable premium, in an instance of your death during the policy term.
In terms of tax benefits, term insurance is also an efficient instrument. It’s premium and death benefits are tax-deductible under Section 80C.
How Tax Savings can help you create wealth in the long term?
Investing your money in the best tax saving investment options will help you minimize your annual liability, which in turn can help you maximize your savings. Making timely investments also gives your money the required time to grow into a significant corpus, which you can use to fulfil your life goals.
