When you are planning your finances, one of the key goals is to save as much taxes as you can. While there are several tax-saving instruments available in the market, the best ones are usually those that are well-aligned with your investment goals.
When you are looking for tax-saving instruments, it is essential that you plan in advance, rather than buying one last minute. Having your finances planned in advance allows you to file your taxes timely and save without worrying. You can also pay advance tax rather than having to pay a lump sum at the end of the financial year. Here are some of the financial products that help in saving taxes.
Tax-saving financial products worth investing in
Public Provident Fund (PPF)
A popular investment that most individuals prefer when it comes to saving taxes is the PPF. it is a long-term product that offers savings opportunities. You can open a PPF account directly with any public or private sector bank or also through the post office. You earn a fixed amount of interest on the money that you put in your PPF account. Under Section 80C of the Income Tax Act, you can claim an annual tax deduction of up to Rs 1.5 lakh on the money you put in PPF.
When it comes to the security of the life of your loved ones, life insurance is a must. A life cover ensures that in your absence, your family has a financial backup to rely on. It is not one of the investments which can be ignored, since it directly impacts you and your family. Depending upon your financial goals, you can choose from different types of life insurance products like traditional life insurance, term insurance, or Unit Linked Insurance Plan (ULIP). The premiums that you pay for your insurance plan are subjected to deductions under Section 80C of the Income Tax Act. You can use an income tax calculator to get an estimate of the tax you will save in a given financial year. The payout that the nominee receives is also exempt from taxes as per Section 10 (10D) of the Income Tax Act.
National Savings Certificate (NSC)
NSC is a saving bond scheme which is primarily launched to encourage savings amongst small and medium investors. You can buy NSC certificates through your bank or post office, or directly online through internet banking. The money you put in NSC is also subjected to deductions as per Section 80C of the Income Tax Act.
Unit Linked Insurance Plan (ULIP)
ULIP is a long-term product that provides life insurance and investment opportunities in a single plan. If you want to invest in different funds, ULIP is an ideal must-have in your portfolio. With ULIP, you can switch between debt funds, equity funds, and balanced funds as per your risk appetite. The premium that you pay for your ULIP can be claimed as deductions under Section 80C of the Income Tax Act. Also, ensure that when you are filing the taxes, you choose the right type of Income Tax Return (ITR) form from the different types of ITR.
New Pension Scheme (NPS)
NPS is a scheme that is regularised by the Pension Funds Regulatory and Development Authority (PFRDA). Any individual between 18 to 60 years of age can participate in the scheme. It is a cost-effective scheme since the fund management charges are quite low compared to the private counterparts. The fund managers handle the funds in three distinct asset profiles, namely, Equity (E), Corporate bonds (C) and Government securities (G). Investors can actively choose the funds they want to put their money in. The contributions made towards NPS are subjected to deductions as per Section 80CCD of the Income Tax Act. You can use an income tax calculator to know the precise deductions you can claim and how it impacts your tax liability.
The above investments are such that along with saving taxes they also help you to reach key financial goals. Ensure that you plan your investments and taxes prior in order to avoid last-minute hassles. Paying advance tax is better than paying a fine or missing the due dates of your tax filing.