Best Tax Saving Investments and Tax Calculations
“Saving a small amount soon builds up to a large amount.”- Anonymous.
Day and night you work to earn to save a lot of money in the end. The idea is to be financially prepared in all the circumstances in life. When you have a sound financial background, you feel confident. There are multiple ways to save that includes saving pennies, buying life insurance, tax saving plan, etc. Everything mentioned here is all under your control. You can save money by keeping aside the portion of your salaries. This is the traditional and the age old method which has worked wonders if you talk about how women save money. Well, for other ways, a life insurance policy and tax saving planning can help you meet your benchmark for rainy day funds.
Accumulating funds on your own is no big science but doing so after buying an investment plan or an insurance policy is. These plans not only support your financial purposes but also work fantastically for tax savings.
Not sure of how tax saving assists in saving money? Let us read further to understand the concept and science behind it.
What is Tax Saving?
Tax saving is the method or the route using which you can strategically and legally save some money for yourself. Paying taxes is your moral responsibility but it does not mean that you put your money wisely to use. Supporting individuals in this context, the government of India introduced tax-saving investment tools for both business and the salaried class.
One of the most common ways in which individuals have been tax saving is under Section 80C and Section 80 D of Income Tax Act, 1961. Under Section 80C, you are eligible for tax deductions up to Rs.1.5 lakhs a year only if you invest in a suitable plan. On the contrary, tax saving under Section 80D is applicable when you buy a health insurance policy. The tax deduction under this section varies depending on the premium you pay for yourself, spouse,children , or dependent parents.
Let us see different plans that can work as tax saving investment tools.
Best Tax Saving Investments
Though you can pick the investment tools considering your risk appetite and financial target in life. But when you are thinking of saving taxes, these are the tax saving investment tools you can consider.
|Tax Saving Investments||Tax Benefit Under Section||Total Tax Deductions|
|Life Insurance Policy||Section 80C for premium and Section 10(10D) for maturity benefits||Up to Rs.1.5 lakhs|
|Health Insurance Policy||Section 80 D||Up to Rs.55,000|
|Unit Linked Insurance Plans||Section 80CCC||Up to Rs.1.5 lakhs|
|Equity Linked Savings Scheme||Section 80C||Up to Rs.1.5 lakhs|
|Public Provident Funds||Section 80C||Up to Rs.1.5 lakhs|
|National Savings Certificate||Section 80C||Up to Rs.1.5 lakhs|
|Fixed Deposit||Section 80C||Up to Rs.1.5 lakhs|
- Life Insurance Policy
Tax savings insurance plans provide you both life security as well as income tax benefit. You can pick a life insurance policy considering your requirement. For example, if you look for a bright future for your children and wish that their education should go un-interrupted, you can pick a child plan. The child insurance policy helps you create a fund for your child’s future and gives you income tax benefit under Section 80C of IT Act, 1961.
- Health Insurance Plan
A health insurance plan is another tax saving investment tool that can help you recover the cost of hospitalisation. Along with the monetary benefit, the insurance plan provides you Income Tax Benefit under Section 80D of IT Act, 1961. The premium for medical insurance will be claimed at Rs. 50,000. (Rs. 25000 for self, spouse, and children; Rs. 25000 for dependent parents under the age of 60). If you are a senior person, you can claim a maximum of Rs 1,00,000 in medical insurance premiums every year. If senior individuals are not protected by health insurance, medical expenses up to Rs 50,000 can be recovered under section 80D.
- Unit Linked Insurance Plans
ULIP is a tax saving insurance product that provides you dual benefit of insurance as well as investment. The premium paid under ULIPs are further invested in market funds that include equity and debt funds that provide you tax-free returns. ULIP is a product for a long term investment that fetches you higher returns as well as make your premium eligible for tax deductions under Section 80C of Income Tax Act, 1961.
- Equity Linked Savings Scheme
Equity Linked Saving Scheme is the safest investment option that gives you tax benefits also. The investment plan comes with the minimum lock-in period of three years. These equity funds generate higher returns if invested for a longer period of time. The investment tool gives flexibility to invest as low as Rs.500/- in the scheme. It is better to put your money in ELSS over a long period instead of a lump sum investment. The tax benefit under ELSS can be received under Section 80C of IT Act, 1961.
- Public Provident Fund
The Public Provident Fund provides tax benefits under Section 80C. It is also a long term savings plan that comes with a lock-in period of 15 years and can be extended in blocks for 5 years. You can open a PPF account either in a bank or a post office. The limit of tax deduction under PPF has been increased from 1 lakhs to 1.5 lakhs.
- National Savings Certificate
National Saving Certificate is a fixed deposit service that can be availed at post offices. The certificate saving scheme is provided by the government of India which indicates that your money is safe. The benefit of tax deduction for National Saving Certificate is provided under Section 80C of Income Tax Act,1961. The saving scheme also comes with a lock-in period that ranges from 5 to 10 years. The limit of tax deduction under the National Saving Certificate is Rs.1.5 lakhs.
- Fixed Deposit
Fixed deposits are tax saving tools that help you put your money safe for a period of time. Fixed deposits provided tax deduction up to Rs.1.5 lakhs under Section 80C of IT Act,1961. In common, fixed deposits have a lock-in period of 5 years before which you cannot use or withdraw the money. The interest earned on fixed deposits can be reinvested either on a monthly or quarterly basis. The current rate of interest on fixed deposit that you get is 2.5% to 5.50% varying from one financial institute to another.
You have now seen the best tax saving investments that help you save tax. But are you sure of the amount you must invest? Do you know what amount of income is taxable? Let us next see about tax calculations.
Tax Saving Calculations
Tax saving calculator uses a formula to calculate the taxable income. The tool keeps in account the total taxable income and your current tax saving investments. Let us see the tax saving calculations with an example:
Amit earned Rs.9,00,000 per annum. He had a standard deduction of Rs.40,000/-. Other than these deductions, Amit had invested money in ELSS to avail tax benefit under Section 80C.
The taxable income will be:
|Old Regime for Tax||New Regime for Tax|
|Gross Total Income||Rs.8,60,000||Rs.9,00,000|
|Investment under ELSS (A)||Rs.1,50,000||Rs.1,50,000|
|Total Taxable Deductions (A+B)||Rs.1,75,000||Rs.1,75,000|
Amit must choose the old regime for tax as it will save him more money.
Benefits of Using Tax Calculator
These are the benefits of using tax calculator:
- The tax saving calculator is loaded with a tax calculation formula which gives you a clear picture of how much portion of income you can/have utilized to save for wealth creation.
- The calculator helps you calculate the amount you have saved under Section 80C.
- You can keep in mind the eligible investments made under Section 80C, Section 80D, and Section 80CCC.
- With a calculator you can compute the total income you can save. The excess of it, you can invest in other plans to build assets.
The rapid change in lifestyles have motivated people to think maximum about savings. Most individuals now think of investments through tax saving plans. The idea is to save the maximum for the family enabling them to lead a confident life. If you do not want to complex the idea of savings, simply buy tax saving insurance plans that keeps you protected for life cover as well as help your family to fulfill their future goals. These tax saving insurance plans give you tax benefits under Section 80C The products like savings plan, retirement plans, ULIPs come with the investment options that yield you returns.