Yes, we don’t like paying taxes and want to be exempted from the same. People with an income of up to INR 5 lakh a year are anyway exempted from taxes. But even those earning more than INR 5 lakh can be exempted to a great extent if not fully. What helps them in this is these tax-saving financial products – ELSS, Term Insurance, ULIPs, Endowment Plans, Public Provident Fund, National Savings Certificate, Home Loan, etc. But these come with other benefits too. So, let’s check all these for tax-saving financial products.
List of Tax-saving Financial Products
The following are the products that you have been looking for –
Tax Benefits of Equity Linked Savings Scheme (ELSS)
An equity-linked savings scheme is a type of mutual fund wherein the money is invested in the shares of different companies. The investments made under this scheme help you save taxes as per Section 80C of the Income Tax Act, 1961. If you have an ELSS, you can claim a tax rebate up to INR 1.5 Lakh in a year and save up to INR 46,800 on taxes.
Besides offering tax benefits, ELSS allows you to compound your earnings with the power of equity. Equity investments can help you generate unimaginable numbers if the fund managers channelize your money effectively. However, one needs to invest in ELSS for long to make the most of fat returns. Returns can be awesome or too bad in the short term due to equity market fluctuations. But over the long term, things even out and you can get solid returns.
Tax Benefits of Term Insurance Plans
This is a life insurance product wherein you can secure your loved ones in the case of a mishap. The death benefit payable under this type of insurance is exempt from tax under Section 10(10D) of the Income Tax Act. You can buy this policy with a return of premium option wherein the insurer refunds the premium after maturity when you survive throughout the policy term. Even the refund of premium is tax-free under Section 10(10D).
Under Section 80C, the premium paid for a term life insurance makes you eligible for deductions up to INR 1.5 Lakhs. In case the policy is surrendered or terminated two years from its inception, you won’t receive Section 80C tax benefits.
These include life cover ranging up to INR 1 crore or beyond, fixed premiums throughout the policy term, flexible policy & premium payment terms, etc. It gives you more value for the money you pay to the insurance company. Consider having it if you don’t have the same.
Tax Benefits on Offer with Unit Linked Insurance Plans (ULIPs)
It is a type of life cum investment plan wherein you will get to invest your money plus secure your loved ones in case of your death. And if you’re not aware, ULIP premiums can make you eligible for tax deductions under Section 80C. Additionally, the returns received on maturity are exempt from taxes under Section 10(10D) of the Income Tax Act.
The premium payable under ULIPs goes into a myriad of market instruments depending on the fund you choose – equity, debt or hybrid. If you can afford high investment risks, choosing equity funds would be better. You could get substantially high returns by continuing to invest in these funds. However, if you can’t afford such risks, stick to debt funds that invest predominantly in bonds, debentures where returns don’t fluctuate as much as equities. If you’re someone whose risk appetite is in between, consider investing in a hybrid fund that puts your money in both equity and debt instruments to give you the benefits of two worlds.
How Much Taxes Can You Save with an Endowment Plan?
An endowment plan also provides you with tax benefits on the payable premiums as well as the received benefits under Sections 80C and 10D of the Income Tax Act, 1961.
A savings cum life insurance plan where you get to grow your money while also ensuring your dear ones are safe financially in case of your absence. The best part about these plans is the guaranteed return they come with. So, you’ll get as promised at the time of inception.
Public Provident Fund Tax Exemption Limits
A Public Provident Fund (PPF) is a retirement plan that comes with triple tax exemptions during the time of investment, interest accrual and withdrawal. This means a deduction of up to INR 1.5 lakh on investment under section 80C of the Income-tax Act, 1961. The interest earned each year is free from taxes.
This is one of the safest ways to accumulate your money. You can open it at any of the banks in India with an amount as low as INR 500. The maximum amount allowed in a financial year is capped to INR 1.5 lakh. You can earn an interest of 7.10% on PPF investments.
National Savings Certificate Tax Saving Limits
This is a fixed investment scheme that you can open with any post office branch. And your investments up to INR 1.5 Lakh can help you earn a tax rebate under Section 80C. Plus, the interest is added back to your initial investment to earn you tax breaks.
Like PPF, it also acts as a safe source of raising your money. The investments made under the 5-year NSC fetch you interest at 6.80% per annum.
Home Loan Tax Concessions
Home loans allow you to save taxes under Section 80C and Section 24 of the Income Tax Act. While section 80C allows exemptions on your principal repayments up to INR 1.5 lakh in a financial year, section 24 grants exemptions of up to INR 2 lakh on interest repayments.
You can access this loan for not only buying a home but also for constructing, renovating and extending the same. What’s great is that the interest rate has fallen to as low as 6.50%, significantly lowering your EMIs and overall interest repayments.