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How to save tax| Income tax saving guide for FY2020-21 Income Tax Saving Investment options, planning and tips

We all tend to invest in plans that help us to save as much tax as possible. There are many tax saving investment options available today, read further to know more.

People invest in life insurance plans, healthcare insurance, pension plans, and mutual funds to save tax as per the income tax slab. However, selecting the right saving option may not be easy for everyone, as some are market-linked products with unpredictable returns, while others offer assured returns. When it comes to tax saving on investment options, you can avail deductions under Section 80D, Section 80C and 80EE.

As per the Section 80C, you can save tax up to Rs.1.5 lakh in a financial year. Below are some of the best income-tax saving investment options available under Section 80C:

  • Fixed deposit: FDs are considered as the best and secured income tax saving investment option. Anyone can open the account, which has a lock-in period of 5 years. You can start investing Rs.1000 at interest rates ranging from 5.5% to 7.75%. FD interest is taxable.
  • Public Provident Fund or PPF: This type of provident fund is a long-term investment option that can be opened by both salaried and non-salaried people. In terms of liquidity, this account has a lock-in period of 15 years with partial withdrawal after seven years. You can start with a minimum amount of Rs. 500 at an interest rate of 8%. Interest earnings on PPS are tax exempt.
  • Employee Provident Fund or EPF: EPF is a retirement benefits scheme available to all salaried employees. Even individuals with Rs.15,000 monthly salary can open an EPF account at an interest rate of 8.55%. EPF, including interest earnings, is entirely tax-free. You can withdraw EPF after two months of leaving the job.
  • National Pension Scheme or NPS: This is a pension scheme that can be opened by any Indian citizen between the age of 18 and 60. The interest rate for NPS ranges from 12% to 14%. There is no limit on the maximum amount of investment as you can start from as low as Rs.500. You can withdraw partially after 15 years subject to terms and conditions. The NPS employer contributions are tax-free.
  • Unit Linked Insurance Plan or ULIP: This is both insurance and investment plan that you can buy for spouse or self or child. The returns are market-linked; hence interest rate varies between 12% to 14%. ULIP investment, withdrawals and maturity are entirely tax-free.
  • Sukanya Samriddhi Yojana: This program is especially for anyone who has a girl child. Parents or guardians can open this account when the girl child turns 10. You can invest a maximum of Rs.1,50,000 in a financial year at an interest rate of 8.5%.
  • Equity-Linked Saving Scheme or ELSS: As compared to FD and PPF, ELSS allows you to earn better returns on investment. It has a lock-in period of 3 years. This income tax saving investment option is best suitable for aggressive investors.

Other Income-tax saving options apart from Section 80C:

You can save income tax by investing in health insurance premiums and home loan interest, to name a few. 

  • Under Section 80D, if you buy Mediclaim or health insurance, then you can save tax up to Rs. 25,000. If you buy the policy for your family, then the tax benefit limit goes up to Rs.50,000 in case of Senior Citizen policy.
  • As for the home loan, you can gain tax benefit up to Rs. 50,000 under Section 80EE.

These are some of the income-tax saving investment options; you need to choose a plan that meets your investment goal and risk profile. Doing this will help you make an informed decision.

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