Entering the last quarter of the financial year gets many of us worried. We tend to fret about where to find the best ways to save on income tax. People try to invest as much money as they can in the various tax savings schemes in the final moment. This way, they end up committing massive blunders. If you are in that group, you should stop panicking and start planning. Investing in multiple tax saving schemes without judging the pros and cons may be challenging to manage.
Why is a Tax Savings Investment Plan Important?
Every earning citizen needs to pay the income tax before the end of the financial year. There are many methods available that help you save taxes. Under the current income tax slab, you can claim tax deductions up to a maximum of Rs. 1.5 lakhs. For tax related investment purposes, it is always better to distribute your savings in an organized way. It will help you diversify your earnings from the interest generated from different plans. Moreover, it will take care of any emergency that may arise in future. Proper planning also adds flexibility in timing your investments. Additionally, it helps you avoid the burden of investing everything at the year-end.
How to Plan your Tax Savings Investment?
When you plan to invest in the tax-savings schemes, decide the type of investment that you can do. You must begin early and decide on the amount of money that you want to invest in different schemes. Starting soon will allow you to distribute the money you want to spend rationally.
While planning, you should also remind yourself about the investment that you have already made previously. You must deduct the amount from 1.5 lakhs and check how much more you can invest.
Calculate the amount of money that you can invest, and consider the following tax savings instruments :
Examples of tax saving investments
· Public Provident Fund (PPF) is a perfect fit for you if you like to keep your finances safe. It starts with a minimum value of Rs. 500 to a maximum of Rs. 1.5 lakhs. Further, this scheme comes with a 15-year tenure. It pays an annual interest of about 8% (subject to change by the government) and is tax-free.
· Equity Linked Savings Scheme (ELSS) is for those who are open to taking some risk with their investments. The lock-in period for this scheme is three years, and the tax exemptions are similar to that of PPF. ELSS allows you to invest a portion of your money in the mutual funds. It helps you earn dividends according to the market capitalization. It can give you quite high returns, depending upon the industry exposure of your stocks. Typically the interest earned varies from 12-15% per annum.
· Unit Linked Insurance Plan (ULIP) is a combined benefit scheme that allows you to avail the benefits of life insurances. Moreover, you can leverage your savings into market-linked assets. ULIP plans have a duration of 15-20 years but the lock-in period is five years. If you are someone who thinks about the future savings, this will be a great investment option for you.
So, now you know the types of investment that you can make to save tax. It is not necessary to invest in all of them. However, knowing the options will give you the flexibility of deciding the right fit for your budget and requirement. Other than the options mentioned, you can also claim tax benefits by disclosing other expenditures. These include home loan principles, children’s tuition fee, health insurances, and life insurances. If you don’t pay home loan EMI, you can claim your tax exemption from the house rent you are paying.
