5 min read
Updated on Dec 15, 2022
When we say ‘tax saving investments’, it implies the transactions that are exempted from tax payments. Now, basically three kinds of investments allow tax exemption on their transactions. But all investments go through three different kinds of transactions such as; early transaction, transaction of accumulated interest, and the transaction of sum offered at maturity.
Now, if an investment receives EEE exemption or triple exemption, it means you can get tax exemption for all the three types of transactions mentioned above. On the other hand, an EET savings can fetch you tax exemptions from the first two transactions mentioned above, whereas an ETT savings will allow your investment to get exemption from only the first transaction mentioned above.
Based on the above details, there are many tax saving investment options or best investment option for tax exemption that offer tax deductions as mentioned in the post below.
This is a savings plan that is specifically crafted for people who are willing to save for their retirement. Termed as one of the best pension plans in India, NPS is a lucrative investment that also allows tax benefits. This plan suits people working in different jobs as well as the ones who are self-employed.
The most beneficial thing about NPS is that it allows additional tax deduction of up to INR 50,000. So, if you buy a National Pension Scheme, you can save over INR 2 lakh on your income per year. However, the downside of NPS is that the scheme has a long period of lock down during which you cannot withdraw money. Since NPS is dedicated for pensioners, it allows withdrawal only after the policyholder attains the age of 60.
The maturity amount is also exempted from tax if you decide to convert 40 percent of the capital into annuity. The rest 60 percent of the amount can be withdrawn as lump sum and this sum is also tax exempted. Thus, NPS serve as a perfect tax saving investment under 80c section of income tax.
If you are looking for long term saving plans, PPF is another good option. The return rate of the linked debt-market along with the triple tax deduction option make this plan a popular one, especially if you are looking for long-term goals. PPF is a 15 year old long term investment plan. However, it allows the insured to withdraw a partial amount after completion of 5 years.
The limitation with PPF is that it allows an individual to invest INR 1.5 lakh as the maximum sum that can be deposited in one fiscal year. So, regardless of the number of PPF accounts you have on different individuals’ names, you can at the max deposit INR 1.5 lakh in one financial year.
When it comes to best tax saving investments, you cannot skip the guaranteed savings plan presented by life insurance providers. Almost similar to ULIPs in terms of tax-exemption, these plans offer tax-benefit of the maturity amount if the yearly premium paid is below 10% of your sum insured. So, if you have premiums that go up to INR 1.5 lakh, it will allow you tax deductions.
However, in the case of guaranteed savings plans you do not get multiple options of funds. Rather it allows a minimum return on investment that is fixed along with offering life insurance coverage. So, if you have any financial goals that require to create a definite amount of money, this plan serves your purpose best.
ULIPs are plans that deserve to be mentioned as one of the best plans for tax saving. Here are the reasons for the same:
ULIPs come with a long tenure of investment. They are simple plans that are easy to manage. All you need is to plan an approach to your investment depending on the level of risk you want to take at the start of the policy. And as per your approach, the ULIP will manage your account and ensure the safety of your returns on maturity.
If you want to invest in mutual funds or equity funds, you can buy an ELSS plan, which is a very popular tax saving investment in India. This is a mutual fund scheme managed inertly by equity funds. It has a lock in period of 36 months, which applies to each deposit made in your account individually. So, you cannot move your ELSS savings to other investments before completing the lock-in period of 36 months. Once the period of lock-in is over, you can sell your share of units and transfer your funds to another safe investment option.
Planning tax appropriately allows individuals to save up enough on their income. If you want to plan your investments cautiously, you must start with reading about the plans that you are willing to buy. Only when you have thorough knowledge of the schemes and their benefits, can you enjoy the fruits of the investments.
Also, being patient is another very essential aspect that you must have before you start investing. You must understand that no investment decision taken hurriedly can bear profitable results.
So, if you were thinking about where to invest to save tax, you now know the best options to invest your savings to save tax.
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