Every new year, we as humans love setting goals for ourselves and plan to do a lot more with each year passing us by. While many plans to read more books, set a routine, others love financial planning for a better future.
With 2021 ending, we only have three months ahead of us when we will have to file our Income Tax Return. However, one needs to be prepared for this and keep their investments in line for tax savings.
One can prevent tax deduction by investing in a number of schemes provided by the government. Government Small Saving Scheme includes NSC, Sukanya Samriddhi Yojana (SSY), PPF, NPS.
Here are some schemes that will help you save tax:
- Public Provident Fund (PPF) - PPF scheme is considered to be the best government scheme to save income tax. You can invest up to Rs 1.5 lakh annually in PPF. The government gives a guarantee on investment in PPF, that is, the money will not sink. At present, the government is giving 7.10 per cent annual interest on PPF. In this, income tax exemption is available on investment under section 80C.
- National Pension System (NPS) - NPS is a government retirement savings scheme. Under section 80C of the Income Tax Act, in addition to Rs 1.5 lakh in tax, benefits of Rs 50,000 can be taken. By investing in NPS, you can take advantage of a total income tax exemption of Rs 2 lakh. You can start investing from Rs 1,000 a month. Any Indian citizen whose age is between 18 to 65 years can open an account in this scheme.
- Sukanya Samriddhi Yojana (SSY) - You can save tax by opening an account in Sukanya Samriddhi Yojana (SSY) in the name of your daughter who is less than 10 years of age. This is a small savings scheme, which has been launched by the Modi government. Income tax exemption can be availed in this scheme by depositing a maximum of Rs 1.5 lakh annually. At present, the government is giving 7.6 per cent annual interest on this scheme.
- Senior Citizen Saving Scheme (SCSS) - SCSS is a better saving scheme for senior citizens. This savings account can be opened in a bank or post office. Income tax exemption can be taken under 80C on the amount deposited in this account. The maximum one can invest in this is Rs 1.5 lakh annually. At present, there is a provision of interest of 7.4% per annum.
- Life Insurance - Tax saving exemption is available on investment in Unit Linked Insurance Plan (ULIP) only. Tax exemption will not be available in the premium going in ULIP exceeds Rs 2.5 lakh. As per the existing income tax laws, the maturity proceeds of life insurance policies are exempted from tax under section 10(10D). The combination of insurance and investment in ULIPs comes with a lock-in period of 5 years.
- Tax Saving FD - You can save income tax by investing in Tax Saving Fixed Deposit. Investments in tax-saving FDs are locked in for 5 years. The interest rates of Tax Saving FDs change from time to time. Tax saving FD investment is a safe and guaranteed return option. You can avail of tax exemption under 80C on fixed deposits up to Rs 1.5 lakh per annum.
- Equity Linked Savings Scheme (ELSS) - Equity Linked Savings Scheme (ELSS) is a type of equity fund and it is the only mutual fund that offers tax exemption of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. In ELSS, returns/profits up to Rs 1 lakh per annum are not taxable. ELSS has the shortest lock-in period of 3 years which is better among all the tax-saving investment options.
