As the year ends, you might want to make a fresh start. Amidst your new year planning, you might tend to start tax planning for the upcoming financial year (2019-2020). Whether you work in a company or work for yourself, taxes can be inevitable for anyone spending money. As a responsible citizen of India, you might pay your taxes regularly, but you might dread the taxes, at the same time.
In India, there are numerous tax saving investments that can reduce your tax liability and allow you to save money. Among the various other investment options, you can reduce your tax burden with the help of Section 80C of the Income Tax Act, 1961 on purchase of a life insurance policy. Before purchasing a plan under Section 80C, let’s understand what Section 80C is in detail:
Under Section 80C of the Income Tax Act, 1961, you can claim a tax deduction up to Rs. 1,50,000 on your taxable income. In simple terms, you can reduce Rs. 1,50,000 from your taxable income. The remaining money would be refunded to your bank account by the Income-tax department. As an investor, you can claim tax deductions under Section 80C. However, the tax deduction might not be applicable for organizations, partnerships or any other corporations.
To claim deductions under Section 80C, you can invest in these top four tax-saving investment plans for the financial year 2019-2020:
- Unit Linked Insurance Plan (ULIP)
Being a unique financial product, a ULIP plan offers substantial return on investment as well as dual tax benefits. When you opt for a ULIP plan, you receive tax benefits, which allow you to save money. As per Section 80C of the Income Tax Act, 1961, you can claim tax deductions up to Rs. 1,50,000 on your taxable income. A ULIP plan offers a death benefit to your nominees in your absence, which is tax-free, as stated under Section 10(10D) of the Income Tax Act, 1961.
- National Pension Scheme (NPS)
NPS is a pension plan, which can offer monthly income to meet your financial needs after retirement. Investing in NPS is beneficial for claiming tax deductions under Section 80CCD (1). Additionally, you can claim a deduction up to Rs. 50,000, according to Section 80CCD (1B). Under NPS, you can withdraw your invested capital after your retirement. After crossing 60 years, 60% of your retirement corpus can be tax-free, while the remaining 40% of the money can be used to purchase an annuity plan.
- Equity Linked Savings Scheme (ELSS)
An ELSS scheme would allow you to participate in the equities. With an ELSS investment, you can reap the tax-saving benefits. When you buy an ELSS scheme, you can put all your money in the equities and wait for it to generate high returns. The lock-in period of three years allows you to fulfil your short-term goals with ease.
- Public Provident Fund (PPF)
PPFs can be the safest and the simplest way to reduce your tax liability. The government of India has introduced the PPF account to lower your tax burden. As an account holder, you should open a PPF account in any post-office or any designated public branches of the bank. If you start your PPF account even with a small amount, you can earn yearly tax-free interests. Although the lock-in period is of 15 years, you can reap the annual benefits of compounding.
In a nutshell, the right time to start your tax planning is at the beginning of every financial year. Don’t procrastinate your tax planning until the last minute as you might end up in a chaos later. If you start investing in tax-saving early, your investments might compound, and let you fulfil your long-term goals. Make tax-planning an additional perk and not a goal for investing.
