In today’s world, planning your finances is crucially important and must not be made on an ad-hoc basis, for a temporary objective or due to an ill-conceived mindset. By planning your finances and taxes properly, you would not only reduce your tax liability but also save for the various goals set at different stages of life. And for that to happen, it is equally essential for you to choose the right tax-saving investment vehicle.
What is Tax-Saving Investment?
Tax-Saving Investment is a type of investment option which offer an individual tax deduction under Section 80 (80C, 80CCC, 80D, 80G, etc.) of the Income Tax Act. The tax-saving season begins on the 1st of April for both salaried and non-salaried taxpayers, and as a smart investor, one must keep an eye out for tax-saving investments as they not only offer you tax exemptions but also provides you with tax-free income.
Tax-Saving Investment Options
As there are multiple tax-saving investment solutions in the market, individuals often feel perplexed on choosing the right plan. You can select a plan based on your preference and risk appetite. Moreover, you can also consider the percentage return of your chosen plan along with its respective lock-in period. Given below are some of the best tax-saving options in which you can invest:
| Investment Option | Return (%) | Lock-in period |
| ELSS Funds | 15-18% | 3 years |
| Public Provident Fund (PPF) | 7-8% | 15 years |
| National Pension Scheme | 12-14% | Until retirement |
| National Saving Certificate | 7-8% | 5 years |
| Unit Linked Insurance Plan (ULIP) | Varies from plan to plan | 5 years |
| Tax-saving FDs in Banks | 6-7% | 5 years |
| Senior Citizen Saving Scheme | 8-9% | 5 years |
| Insurance | Varies from plan to plan | Varies from plan to plan |
Why is Tax-Saving Investment Planning Important?
- Gives an Early Head-Start
One of the biggest advantages of planning your tax-saving investment early is that it gives you a solid head start for your future. When you invest early in a tax saving plan, it offers a longer duration for your investment to yield higher returns. This is especially true for market-linked investment options and money-saving plans such as ELSS, ULIP, tax-saving mutual funds and fixed deposits in banks which can offer you great returns in the long run.
- Sets Financially Healthy Habit
When you plan your investments early, it inculcates in you a financially healthy habit of placing aside a share of what you earn for investment. It sharpens your budget-making skills and makes you more aware of your expenses. Once you figure out your spendings, you can plan your expenses more mindfully.
- Build a Corpus
Majority of tax saving instruments provide more than just tax benefits. They also operate as an essential scheme that helps you build a corpus that can enable you to meet both short-term and long-term goals. One such investment avenue is the savings plan. A savings plan offers the dual benefits of life insurance as well as assured returns on maturity. You can easily find the best saving plan in India, which is most suitable for your profile.
- Avail Tax Deductions
Tax Saving Investment Planning also enables you to avail deductions on multiple long-term purchases such as home loan, education loan or savings account. Moreover, if you stay in rented accommodation but do not receive House Rent Allowance (HRA), then you are eligible for deduction on the house rent amount.
- Guaranteed Returns with Small Investment
Based on your risk appetite, you can always look for policy providers that can offer you the best single premium life insurance options. Such savings plans can provide you with substantial risk-free returns along with life cover and tax benefits. You pay the premium once and get extended coverage for the entirety of the policy term. Savings-cum-insurance plans offer a perfect avenue to invest, and in return, get life insurance as well as guaranteed corpus.
Conclusion
The benefits of tax-saving investment planning are plenty and vary differently for various taxpayers. It would require some time to find an investment instrument that offers the right balance of saving tax and provides the highest returns while matching your investment profile. Hence, it is essential you do thorough research and go ahead with a plan that suits your financial needs perfectly.
