Tax-Saving Investments: Full list of tax-saving schemes as current financial year set to end
Effective tax planning minimizes tax liabilities, enhancing savings. With FY23–24 ending soon, consider tax-saving investments. Home loans offer deductions under Section 80C and Section 24(b). Health insurance premiums qualify for exemptions under Section 80D. Explore options like ULIPs, NSCs, and tax-saving mutual funds for diversification and savings growth.
Efficient income tax planning is a crucial aspect of financial management. It aims to minimise tax liabilities and increase savings. With the fiscal year FY23–24 ending on March 31, 2024, it is an excellent time to consider tax-saving investment options that can boost disposable income.
The financial year in India begins on April 1st and ends on March 31st of the following year. With the deadline for tax-saving investments for the financial year 2023–24 fast approaching, it’s essential to start thinking about investments if one hasn’t already.
For the majority of salaried employees, taxes may have already been deducted by the employers in January and February.
However, for those who still need to make investments, the government of India offers numerous opportunities for savings and expenses through the Income Tax Act, which can significantly reduce tax liabilities and increase savings.
Investing in tax-saving schemes is a crucial aspect of financial planning strategy and management. It can help individuals meet their financial goals by maximising tax benefits and increasing disposable income.
Here are some tax-saving investment options that one can consider before March 31st to save on taxes and increase their savings in the new financial year.
1. Home loans:
One can avail of the tax benefits on home loans under Section 80C and Section 24(b) of the Income Tax Act, as it enables one to save tax on the principal repayment amount of a home loan and the interest paid.
Individuals can avail of tax deductions up to Rs 1.5 lakh for principal repayments on home loans under Section 80C and even get exemptions on home loan interest payments up to Rs 2 lakh annually under Section 24(b).
Furthermore, renting out the newly purchased home can exempt one from the entire interest component in annual income tax computations. Section 80EEA allows one to claim an additional reduction in the annual tax liability, given that one is a first-time homeowner.
2. Health insurance or Mediclaim:
Health insurance, or Mediclaim, is known for providing coverage for expenses incurred before and after an accident or hospitalisation, up to the specified sum assured. Individuals can avail of tax benefits under Section 80D for the portion of their annual taxable income used for premium payments. However, the amount exempt from income tax depends on the age of the insured person; for senior citizens, insurance premiums are up to Rs 20,000, while for others, the limit is Rs 15,000.
3. Tax-loss harvesting:
Tax-loss harvesting under the Income Tax Act of 1961 allows new investors to minimise and save from tax liability by offsetting capital gains with capital losses. As up to Rs 1 lakh in long-term capital gains are tax-free, this strategy involves selling underperforming investments to realise losses, which can be used to offset taxable capital gains made from other investments.
4. Government schemes:
There are several government-mandated investment schemes available that offer high returns on investments and tax waivers, which can help individuals claim up to Rs. 1.5 lakh on their total annual income under Section 80C of the Income Tax Act.
To avail of tax exemptions, individuals can invest in several tools, such as:
- Senior Citizen Savings Scheme (SCSS)
- Sukanya Samriddhi Yojana (SSY)
- National Pension Scheme (NPS)
- Public Provident Fund (PPF)
- National Pension Scheme (NPS)
5. Life Insurance:
Section 80C of the Income Tax Act allows for tax deductions on premium payments for life insurance policies. Under Section 10(10D), the maturity proceeds or death benefits received from the insurance policy are tax-free.
However, for policies issued after April 1, 2012, the annual premium must be less than 10% of the sum assured to claim deductions up to Rs 1.5 lakh under Section 80C. For policies issued before April 1, 2012, the premium should be at most 20% of the sum assured to be eligible for the same deduction.
Additionally, Section 80CCC provides tax exemptions up to Rs 1.5 lakh for the purchase, renewal, or annuity payments of life insurance policies through monthly salary.
6. Tax-saving Mutual Funds:
Section 80C of the Income Tax Act allows individuals to save tax with mutual funds, commonly referred to as equity-linked savings schemes (ELSS), with a limit of up to Rs 1.5 lakh. Additionally, the proceeds from maturity or death are exempt from tax under Section 10(D). These funds primarily invest in equities and are appropriate for investors with a moderate to high-risk tolerance; however, they have a three-year lock-in period.
7. Unit-Linked Insurance Plan (ULIP):
ULIPs offer a long-term investment opportunity, allowing investors to choose between equity and debt funds or a combination of both under sections 80C and 10(10D) of the Income Tax Act of 1961.
8. National Savings Certificate (NSC):
National Savings Certificates are a government savings bond scheme designed to encourage small to medium-income investors to save while availing of tax benefits under Section 80C.
9. Tax Saver Fixed Deposit:
Investing in tax-saver fixed deposits allows you to claim a tax deduction under Section 80C of the Income Tax Act, 1961, up to Rs. 1.5 lakh. These fixed deposits have a mandatory lock-in period of 5 years, and the interest earned is taxable, ranging from 5.5% to 7.75%.
Tax-saving investments provide an excellent opportunity for individuals to save on their tax liabilities while increasing their savings. With a wide range of investment options available under Section 80C of the Income Tax Act, it is important to choose the investment plan that best suits your financial goals and risk appetite.
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