We all have financial goals; a robust financial plan is the best way to achieve them. However, building a solid financial plan without proper tax planning is impossible. Taking measures to reduce your tax burden is a priority for all taxpayers as it is one of the best ways to retain your earnings. You can avail of several tax-saving options to reduce your overall tax liability.
In this blog, we shall discuss some of the popular income tax-saving options available and highlight a few tax-saving investments for different taxpayer groups.
Preferred Tax-Saving Investment Options at a Glance
| Tax-Saving Options | Returns | Lock-in Period | Tax Benefits |
| Equity Linked Savings Scheme (ELSS) | 15%-20% annualized returns# | 3 years | Tax exemption under Section 80C for amounts under ₹1.5 lakhs |
| Unit Linked Insurance Plan (ULIP) | 10%-12% annualized returns## | 5 years | Tax benefit up to ₹1.5 lakhs under Section 80C and under Section 10(10D) for death or maturity benefits earned. |
| Public Provident Fund (PPF) | 7.1% p.aa | 15 years | Tax exemption under Section 80C. Maximum deduction allowed of up to ₹1.5 lakhs |
| Employee Provident Fund (EPF) | 8.15% p.a. | 5 years | |
| National Savings Certificate (NSC) | 7.7% p.a. | 5 years | |
| Senior Citizen Savings Scheme (SCSS) | 8.2% p.a. | 5 years | |
| Sukanya Samriddhi Yojana | 7.6% p.a. | Maturity period: 21 years from account opening | |
| Bank FDs | 5.5% – 7.75% p.a. | 5 years | |
| National Pension Scheme (NPS) | 9%-12% p.a. | 5 years | Tax deduction of up to 10% of basic pay under Section 80CCD(1) and up to ₹50,000 under Section 80CCD(1B), subject to a maximum of Rs.1.5 lakh under Section 80CCE. |
5 years annualized return. Source: Moneycontrol
Tips for Effective Tax-Planning Through Tax-Saving Options
One of the most crucial pillars of financial planning – tax planning, must ideally be done at the beginning of the financial year. However, in India, most taxpayers postpone this critical decision-making process in the last quarter of a financial year, risking themselves to a last-minute scramble.
- Tip #1: Estimate your yearly income at the beginning of the financial year. This will help you understand your expected taxable income.
- Tip #2: Check your existing tax-saving options. These may include your home loan repayment, EPF contribution, etc.
- Tip #3: Plan investment in tax-saving schemes accordingly. Once you know your estimated tax liability and current expenses, you can plan investments in tax-saving schemes wisely.
- Tip #4: Assess your tax liability at regular intervals. This step will help you adjust your tax-saving plan.
- Tip #5: Opt for tax-saving investments based on your risk profile and willingness to lock in the funds for the specified time. If you already have equity investments, you may look for options like ELSS that offer both equity exposure and tax benefits at relatively lower risk.
- Tip #6: Purchase adequate medical insurance for self, spouse, children, and parents; premiums are eligible for tax deduction under Section 80D.
- Tip #7: Start investing early in age and the first quarter of a financial year. Early investing gives you the benefit of the power of compounding, thereby increasing your overall returns. Investing in the first quarter of a financial year helps you spread the tax-saving investment options wisely.
Preferred Tax-Saving Options for Different Age Groups and Income Sources
1. Tax-Saving Investment Options For Unmarried Individuals Or Newly Married Couples
| Age group | 20-35 years |
| Risk appetite | ELSS, ULIP, or other life insurance products and PPF. Moreover, purchase health insurance (deduction under Section 80D). Individuals with a high-risk appetite can also consider investing in high-return stocks. |
| Recommended tax-saving investments | With a single income always consider diversifying your portfolio to ensure better returns. |
| Things to remember | With a single income always consider diversifying your portfolio to ensure better returns. |
2. Tax-Saving Investment Options For Parents With Single Income
| Age group | 25-45 years |
| Risk appetite | Low |
| Tax-saving investment options | When you have more responsibilities, a more prudent financial plan may help. Chart out your important long-term goals and make investment decisions accordingly. |
| Things to remember | When you have more responsibilities, a more prudent financial plan may help. Chart out your important long-term goals and make investment decisions accordingly. |
3. Tax-Saving Investment Options For Parents With Double Income
| Age group | 25-45 years |
| Risk appetite | Moderate to high |
| tax-saving investments | ELSS, ULIP or other life insurance, bank FDs, NPS or pension schemes, and health insurance. |
| Things to remember | Exhaust Section 80C limit for taxpayers (₹3 lakhs) to invest substantial amounts in medium-risk instruments. If you wish to understand which is better for you – tax-saving vs equity investment, always consider evaluating your risk appetite, current financial situation, and long-term financial goals. Equity investments are more inclined towards wealth creation, whereas ELSS and ULIPs can offer dual advantages. |
4. Tax-Saving Investment Options For Senior Citizens and Retired Persons
| Age group | Above 55 years |
| Risk appetite | Low |
| tax-saving investments | SCSS, NPS, annuity plans, and pension funds |
| Things to remember | Look for income tax saving options that offer a steady flow of income after retirement. Restrict your investment to low-risk instruments unless you are in a comfortable financial position. |
Conclusion
There are multiple ways to save tax. However, it is crucial to understand the tax-saving options that suit you the best and offer the dual advantage of saving and wealth creation. Planning your taxes and contacting a trusted investment advisory service like Research & Ranking is essential to help you make informed decisions.
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FAQs
What are the best tax-saving options?
The best tax-saving option depends mainly on your income, risk-taking ability, and willingness to lock in your funds for a certain period. However, some popular tax-saving options include ELSS, ULIP, PPF, etc.
How can I save my 30% tax?
Individuals with earnings of ₹15 lakhs and above in a financial year come under the 30% tax range. Besides investing in high-return stock, consider investing in instruments offering tax benefits under Section 80C. You can earn additional tax benefits by purchasing medical insurance and opting for a home loan.
How can I save tax beyond 1.5 lakhs?
Section 80C offered a deduction of up to ₹1.5 lakhs. You can save tax beyond this limit by purchasing a health insurance policy (Section 80D), investing in NPS (Section 80CCD), opting for a home loan (tax deduction on interest under Section 24(B)), or availing of deduction on bank interest savings (Section 80TTA).
How do you save taxes on a 10 lakh salary?
Firstly, opt for the right tax regime based on your investment in tax-saving options. Next, utilize your Section 80C and 80D deductions. Also, take advantage of HRA exemption to save maximum tax on ₹10 lakh salary.
I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.