Top Tax-saving Investments

Introduction

Investing your money is a wise decision when you’re saving for a rainy day. If you have cash lying around in your bank account, it’s time to start putting some of it to work! Whether it’s in mutual funds, direct stocks, or pension plans, there are several different investments that can help you get a decent return on investment and increase your financial stability. Another advantage of investing is that some plans might help you save money on income taxes.

This article will offer you some of the most common tax-saving investment plans in 2022.

Top 10 Tax-saving investment

1. Equity-linked saving scheme funds

By investing in an equity-linked saving scheme fund, you could save up to a limit of Rs. 1.5 lakh in taxes each year under Income Tax Act Section 80C. Nevertheless, you may opt to invest over the threshold of Rs. 1.5 lakh, but the surplus amount will not entitle you to tax advantages under Section 80C.

2. Unit-linked insurance plans

Unit-linked insurance plans or ULIPs offers tax deduction up to a limit of Rs. 1.5 lakhs of insurance premiums under the Income Tax Act Section 80C. Furthermore, Section 10 (10D) offers tax exemption on the amount withdrawn by the individual after the five-year lock-in period. However, the overall assured sum needs to be 10 times or more than the yearly payable premium amount.

3. Senior citizen saving schemes

Under Income Tax Act Section 80C, the primary amount invested in senior citizen saving schemes is entitled to a tax break of up to a limit of Rs. 1.5 Lakh each year. However, it is important to note that interest earned on these schemes is taxed in accordance with the individual’s tax bracket.

4. Pension plans

The government enacted Income Tax Act Section 80CCC to encourage people to participate in pension plans. This allows any contribution in pension schemes to be subtracted from the person’s gross income, avoiding taxes.

5. Tax-saving fixed deposit schemes

Rates of interest on fixed deposits are low, but taxes reduce them yet further. You can claim a tax benefit by depositing in tax-saving fixed deposits under Income Tax Act Section 80C. Any investor who invests in tax-saving FDs can receive a tax deduction of up to a limit of Rs 1.5 lakhs on their investment.

6. National pension schemes

National pension schemes offer tax benefits under 3 different scenarios:

• Under Section 80 CCD(1), the amount contributed by the employee will get a tax break up to the salary’s 10%. The salary includes the basic amount and DA. This tax deduction is subject to an overall threshold of INR 1.5 lakhs.
• Under Section 80 CCD(2), the amount contributed by the employer will get a tax break up to the salary’s 10%. This deduction is in excess of the Rs. 1.50 lakh 80 CCE threshold.
• Under Section 80 CCD1(B), the additional amount invested by the employee in the Tier I NPS account is eligible for tax deduction up to a limit of Rs. 50,000. The employee can choose to invest more than that but the deduction threshold is set to Rs. 50,000.

7. Public provident funds

You are not required to pay any tax amounts on your ongoing PPF investments, withdrawals, and accruals. It allows a tax exemption of up to a limit of Rs 1.5 lakhs on funds invested in each financial year under Section 80C of the Income Tax Act. The interest amount you earn each year is also tax-free. Finally, the accumulated corpus that you withdraw at maturity time is also tax-free, making it a tax-free revenue.

8. Life insurance plans

The amount paid as a premium to any life insurance policy is subject to tax deductions up to a limit of Rs. 1.5 lakhs under Income Tax Act Section 80C. Apart from that, under section 10 (10D), the maturity amount paid to the insured is tax-free provided that the overall assured sum is 10 times or more than the yearly payable premium amount.

How to calculate tax liability?

If you want to calculate your income tax liability post-tax deductions, your best bet is an online income tax calculator. This can help you avoid calculating the same thing over and over again and also helps you avoid mistakes. These tools can help you generate an accurate and precise estimate of your taxable income. These online income tax calculators are easy to use and make calculating the amount that you owed for the year a snap.

The bottom line

These are just a few of the main types of tax-saving plans that can help you save money when filing income tax, along with a brief description of how they work and how they might be able to help you in the future. Research all of your options carefully and consider your situation before making an investment. Refer to an online income tax calculator to compute your income tax liability for the year and plan accordingly.