Last updated: January 30th, 2023 5:20 PM

Tax Savings Options

 Tax savings investment plans are instrumental to achieving the financial goals, investments schemes that are available in the market provide tax exemptions and tax deductions. In this article, we will talk about how you can reduce your tax burden by investing in tax-saving schemes at the right time. For the FY2020-2021 you can opt for the new tax regime which offers lower, concessional tax rates without any tax deductions and exemptions or you can continue with the old tax regime of higher tax rates that are combined with various tax exemptions and deductions If you are sticking to the old tax regime in FY 2020- 2021 without finalizing the financial products to invest in to reduce the tax outgo you can consider these online options to save time.

 5 Year tax savings bank fixed deposit

Five years fixed deposit is the most hassle-free online tax-saving investment. If you have access to internet banking, then you can easily invest in the five-year tax-saving bank fixed deposit. Once the investment is done auto-renewal is not allowed in case of tax saving FD. Bank FDs offer two interest options -cumulative and non-cumulative. The interest earned is added to the income and is entirely taxable. Banks offer higher interest rates to senior citizens usually 0.50%  more than the FDs that are made by the non-senior citizens. Do keep in mind that a product like this will help in saving taxes and also preserve the capital it will not help in wealth creation over the long term. As most of the post-tax returns from bank FD are lower than the inflation rate for those in the 30% tax bracket.

Term Life insurance Policy & tax savings

You can buy a term insurance policy or unit-linked insurance plan (ULIP) online. Buying a term life insurance policy may not work at the last minute as you might be called for medical tests or the underwriter may require the information before issuing the policy. Your tax benefit for FY 2020-2021 will depend on the issuance date. If the date of issuance is after March 31 2021 then you will not get the tax benefit for the FY 2020-2021.

ULIPs for tax savings 

Unit Linked Insurance Plans or the ULIPS are the insurance policies that offer the potential of wealth creation while providing life cover security. A part of your premium is dedicated towards the life cover and the rest is assigned to a common pool of money called fund, which invests in equity, debt, or a combination of both. The returns on the investments are dependent on the performance of the fund that you opt for.

Public Provident Fund

Public Provident Fund (PPF) was introduced in India in 1968 to mobilize small savings as investments and with returns on them. It can also be a savings cum tax saving investment vehicle that enables one to build a retirement corpus while saving the annual taxes. If you are looking for safe investment options to save taxes and earn guaranteed returns then get a PPF account.

Health Insurance Policy for tax savings 

Health Insurance is a crucial investment, it provides financial security in case of emergency. Health insurance ensures complete coverage over any emergency or planned hospitalization. You can also avail of tax benefits on the premiums that are paid towards health insurance under Section 80 D of the Income Tax Act subject to terms and conditions.

Equity Linked Savings Scheme (ELSS)

ELSS mutual funds come with a lock-in period of three years with an option such as PPF, EPF, Tax saving, FD, etc. There is no limit on the maximum amount that can be invested, the maximum deduction which can be claimed is Rs.1.5 lakh under Section 80 C. You can choose between the regular and direct options. Choosing the right ELSS fund is necessary. The best time to start planning the tax-saving investments is at the beginning of the financial year. By planning this at the start of the year your investments can compound and also help in achieving the long-term goals. Tax savings is a goal in itself. Check the tax-savings expense you already have which include the insurance premiums, children's tuition fees, EPF contribution, home loan repayment. Choose the tax investments based on your goals and the risk profile. ELSS Funds, PPF, NPS, and Fixed deposits are some popular options.