After you start earning, tax payments can become an essential part of your financial planning system. As a salaried individual, you might be scurrying around the corner for saving taxes as the new financial year is approaching. For saving taxes in FY 2020-2021, you can start investing in investment tools that can be suitable for you. Therefore, let’s go through the top four investment options that you should opt for this year:
- Unit Linked Insurance Plan (ULIP)
A ULIP plan can be one of the most effective tax savings investments to reduce your tax burden. It offers not only dual benefits of insurance and investment but also dual tax benefits on premium as well as maturity proceeds.
While the insurance component can safeguard your loved ones in your absence, the investment element can let you participate in the equity market. Moreover, the dual-tax benefits can be applied as per Section 80C and Section 10(10D) of the Income Tax Act, which are as follows:
- Section 80C
As a policyholder, your insurance company can allow you to claim a deduction up to Rs. 1,50,000 on your taxable income.
- Section 10(10D)
As the beneficiaries, your insurer can provide a tax-free pay-out after the maturity date.
- Provident Fund (PF)
The age-old investment tool that can work in your favour can be a Provident Fund (PF). It is a popular investment plan, which has been in the market for the longest time. PFs have been introduced to ensure that you receive a lump-sum amount after you retire for your financial independence. Under PFs, you can find these two main types:
- Public Provident Fund (PPF)
It is launched by the government that can have a lock-in period of 15 years. With regular contributions, you can accumulate enough wealth by the time you retire. While the minimum amount of investment under a PPF account can be Rs. 500, the maximum limit can be Rs. 1, 50,000.
- Employee Provident Fund (EPF)
As a working professional, the organisation that you work in might open an EPF account voluntarily for you. Under EPF, over 12% of your income can be directed towards the contributions every month.
- National Savings Certificate (NSC)
An investment in NSC can be an excellent way to save taxes. NSC is an initiative started by the government that can allow every type of investor to save their taxes. Since the plan has been formulated by the government of India, the investment risk can be low. Typically, you can open it at a post-office that can provide you with a fixed income. An NSC scheme can be applicable for only the residents of India, which can make it difficult for non-residential Indians (NRI) and Hindu Undivided Families (HUF) to invest.
- Five-year Fixed Deposit (FD)
As the name suggests, 5-year FDs can have a lock-in period for five years. Under 5-year FDs, the investment can qualify under the tax break of section 80C of the Income Tax Act, 1961, wherein you can claim a deduction up to Rs. 1,50,000 on your taxable income. Moreover, the interest earned in return can be tax-free. Besides, there might not be a maximum limit on your invested capital if you wish to park your funds under a 5-year FD.
To conclude, there can be a host of online investment plans available in the market for you to save taxes after you start earning. However, you should not get overwhelmed by the multiple choices in front of you. Conduct research about every investment tool and choose the right one based on your financial goals and tax slabs that can let you save more.