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Smart tax planning allows individuals to save tax and make better investments for the future. Let’s discuss various things Tax saving investment Options in FY 2022-23 in this post to guide you.
Everyone who plans savings and investments for a financial year includes some tax saving options. Tax saving is a significant aspect of financial planning. A smart strategy of tax planning can benefit from the dual purpose of saving tax and achieving financial goals.
Let’s discuss some great tax savings Investment options Tax benefits in FY 2022-23 and help you get a better perspective on meeting your future cash requirements.
Best Tax Saving Schemes for FY 2022-2023 to Maximize Tax Benefits
|Tax saving investment options||Specific income tax category for tax exemption|
|Life insurance||Section 80C (Premium) Section 10(10D) (Death / Maturity)|
|Medical insurance||Section 80D|
|Pension plans||Section 80CCC (sub-section under section 80C)|
|Tax saving mutual funds||Section 80C Section 10(10D) (Death/Maturity)|
10 Income Tax Saving Options or Financial Instruments and Tax Exemption Categories:
- Public Provident Fund (PPF) – PPF is an investment vehicle that can be used to save tax. It is a long-term investment and savings account, which can be opened in a bank or post office. PPF generates a guaranteed rate of interest, while this amount is tax deductible under Section 80C up to Rs 1.5 lakh.
- Unit Linked Insurance Schemes (ULIPs) – These are long term schemes that allow insurers to invest from various funds like equity funds, debt funds etc. Also, these funds are flexible so that the insurer can switch between funds to meet your financial goals. You can benefit Income tax saving options Under Sections 80C and 10(10D) of the Income Tax Act, 1961.
- Fixed Deposit (FD) – FDs are tax saving investments which are tax exempt under Section 80C of the Income Tax Act, 1961. Tax-saving fixed deposits can help investors save up to Rs 1.5 lakh in tax. FDs come with a lock-in period of 5 years and offer an interest rate of 5.5% – 7.5%. However, the interest earned on FD is taxable.
- National Savings Certificate (NSC) – NSC is a savings bond scheme that helps small and medium income investors to save while allowing tax deductions under Section 80C. NSCs can be purchased by anyone having a savings account with a post office or bank. If you have internet banking access, you can buy NSC certificates online. Investors can purchase NSC certificates for themselves or minors.
- National Pension Scheme (NPS) – NPS is a scheme regulated by the Pension Funds Regulatory and Development Authority (PFRDA). Any citizen between 18 to 60 years of age is eligible for NPS. It is a cost effective plan with low fund management charges. This fund can be managed in three different accounts namely Equity, Corporate Bonds and Government Bonds. Investments made under NPS are tax exempt under Section 80CCD for an amount up to Rs 1.5 lakh.
- Medical Insurance – Health insurance covers hospital and other medical expenses of the insured and his/her family due to accidents and illnesses. Health insurance called Mediclaim offers tax benefits under Section 80D. The policyholder can get up to Rs 15,000 on his health insurance premium, while the insured is also eligible for a tax benefit of up to Rs 20,000 on senior citizen health policies. Sum assured received under critical illness policies is also tax exempt.
- Senior Citizen Savings Scheme (SCSS) – SCSS is a tax saving investment option supported by the government for senior citizens above 60 years of age. The scheme is expected to allow senior citizens a source of income during their post-retirement period. The amount deposited under this scheme is tax free up to INR 1.5 lakh as per Section 80C of the Income Tax Act, 1961 under the old tax regime. On the other hand, the interest received is subject to taxation depending on the tax brackets of the policyholder.
- Pension Schemes – A pension plan is a type of life insurance that aims to protect an individual and his family after retirement. With a pension plan, a person protects his dependents and his old age after retirement. Contributions to pension schemes are tax exempt up to Rs 1.5 lakh under section 80CCC, which is a sub-section of section 80C. One-third of the maturity pension is tax-free, while the remaining two-thirds is taxable at nominal tax rates. Once the beneficiary dies, the amount received is treated as tax-deductible.
- Life Insurance – A life insurance policy ensures the financial security of the insured’s family when the insured is no longer around. Whether a traditional life insurance policy or a ULIP, each plan allows tax saving options on premiums paid by the insurer under Section 80C up to Rs 1.5 lakh. Maturity or death benefits received under a life insurance plan are tax-free under Section 10(10D). There are many life insurance plans like term plans, endowment plans, ULIPs, money back plans etc.
- Tax Saving Mutual Funds – These funds are called Equity-Linked Savings Scheme (ELSS) and allow tax benefits of up to Rs 1.5 lakh under Section 80C. The amount invested under this scheme has a lock-in period of three years and is invested in high risk funds. Also, the corpus received on death and maturity of the investor is tax exempt under Section 10(10D).
How to plan tax deductions for a year?
The beginning of the fiscal year on April 1 marks the beginning of the tax saving year for salaried individuals or non-salaried taxpayers. With a good investment portfolio, a person can not only save tax through tax deduction but also earn tax free income.
Therefore, it is better to start planning for tax-advantaged investment funds from the beginning of the financial year, rather than waiting for the end. If you don’t plan your tax deductions meticulously from the first quarter of a financial year, you may miss out on saving enough tax or getting maximum returns.
As seen above, most investment schemes that allow for tax savings come under Section 80C of Income Tax and allow a deduction of up to INR 1.5 lakh. Depending on their needs, investors can opt for various tax saving schemes.
Tax savings for single, unmarried investors/single income couples/single income parents
Unmarried people in their 20s or 30s, or single-income couples or single-income parents earning only one family member can invest in the following tax-saving options:
- ELSS or Equity Linked Savings Schemes
- Market linked investment options with EEE benefits like ULIP, ELSS, Child Schemes etc.
- ULIPs or Unit Linked Insurance Schemes
- PPF or Public Provident Fund
- Term insurance cover (with sum more than 20 times of annual income)
Couples with children should note that they can claim tax exemption on children’s higher education loans under section 80E and tax exemption on education fees under section 80C.
There are savings plans for parents with dual income sources
A family with dual sources of income can avail deductions of over INR 8.5 lakhs by making prudent investments and insurance. Options include:
- A couple can save up to Rs 3 lakh under 80C
- Individuals can purchase term plans with SI equal to 20 times their annual salary
- 20% annual return can be allocated to market linked investment with EEE benefits like ULIPs, ELSS, Child Plans etc.
- One can invest in Public Provident Fund (PPF).
- Invest at least 10% of income in pension schemes like NPS and other pension schemes.
Tips to save better for the future
Here are some tips to keep in mind:
- Parents may note that they can claim tax exemption on school fees
- Parents should start investing in children’s programs
- Investing in property is another way to save tax. You can get tax benefits on home loan
- Also, medical claim or health insurance is another option that allows for tax deductions
Tax saving schemes for retired senior citizens
Here are some points to remember:
- Senior citizens can opt for annuity schemes for regular cash flow after retirement, which are tax-saving options like SCSS.
- They can opt for annuity plans to save tax and generate income
- ULIPs also serve as an option for post-retirement fund formation and allow deductions under section 80C and 10(10D).
As seen above, tax saving investment options benefit policyholders in different ways. So, if you are planning to invest, go for people who allow tax-free benefits. So, you should consider the tax saving schemes mentioned in the above post.
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Frequently Asked Questions on Tax Saving Investment Options
How many tax-free investment instruments can an individual hold?
There is no limit to buying tax-free investments. Individuals can buy investments to save as much tax as they want. However, it should be noted that a certain tax exemption limit must be maintained while availing the tax benefits.
Is there any maximum investment limit under section 80c?
Yes, Section 80C of the Income Tax Act, 1961 sets the maximum investment limit at INR 1,50,000 from the total taxable income of the insured.
How to reduce tax by law?
To legally minimize tax, invest in various tax-free investment instruments approved by the government.
Can I reduce my taxable income? How?
Below are some ways to reduce taxable income in India:
Invest in instruments that allow tax deductions listed under Section 80C of the Income Tax Act
Claim tax-free investments to save tax
If you have a home loan, get a tax break on it
Death benefit or maturity benefit received under life insurance plans are tax exempt
Section 80D of Income Tax allows a portion of health insurance to be exempted from tax. Also, premiums paid for senior citizen health insurance also come under tax exemption.
What are the tax exemptions in India?
The Income Tax Act allows several tax deductions and exemptions to taxpayers including deductions under Section 80C and Section 80D, standard deductions, house rent allowance, leave travel allowance and more.
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