As a responsible human, you will surely know that tax savings are crucial for financial planning. And formulating the best tax-saving plan with an intelligent tax-planning strategy can seamlessly cater to the dual objectives of individuals. In a nutshell, you will meet your financial goals and save taxes in the process.
This article will give you valuable insights into the best tax-saving investment options for 2023. Please stay tuned until the end of the article to learn more so that you can make an informed decision.
Let’s check them out.
- Life Insurance
This investment option plays a crucial role in the financial portfolio of an individual. In fact, a life insurance policy offers security to an individual’s family in case of an eventuality. In addition to tax benefits on premiums paid towards, the maturity or death claim amount is absolutely tax-free. A person earning an annual salary of Rs. 15 Lakhs per annum can save tax upto Rs. 46,800 by paying Rs. 1.5 Lakhs towards Life insurance policy.
- PPF or Public Provident Scheme
This popular investment vehicle can significantly assist you in saving taxes. But in order to invest in this efficient scheme, you need to open a PPF account at your desired bank. Any contributions made to the PPF account will help earn a guaranteed interest rate. In fact, you can also claim deductions under Section 80C up to Rs. 1.5 lakh every financial year.
- Fixed Deposit
A Fixed Deposit is one of the most common tax-saving option, as you can save a significant amount of money under Section 80C. On the other hand, you can also claim a deduction of up to Rs. 1.5 lakh after investing in FD. In fact, there is also a lock-in period on FDs for five years, so the interest earned is taxable. Please note that the rate of interest for fixed deposits typically ranges from 5.5% to 7.5%.
- National Savings Certificate
The National Savings Certificate is a fantastic savings bond scheme that encourages both small and mid-income investors. And whenever you commence your investment, you can enormously save on your taxes under Section 80C. Also, note that you can purchase NS certificates in e-mode only when you have a savings bank account. However, this is applicable only if you have access to internet banking. As an investor, you can buy NSCs for yourself and on behalf of minors.
- ULIP or Unit Linked Insurance Plan
This long-term investment option enables you to choose between debt funds and equity funds, or both. Also, ULIPs provide excellent flexibility to switch between funds in sync with your financial goals. In most of the ULIPs, the switching and redirection of funds is offered free of cost by insurers. You can invest in this tax-saving instrument and make tax savings under sections 80C and 10(10D) under Income Tax Act 1961.
The Pension Funds Regulatory and Development Authority regulates the New Pension Scheme. Any Indian citizen within the age bracket of 18–60 can seamlessly participate in this scheme. Since the fund management charges are extremely low, his tax-saving investment instrument is highly cost-effective.
Please note that all the contributions made to NPS are covered under Section 80CCD of the Income Tax Act.
How Many Tax-Saving Instruments Can One Possess?
Individuals can purchase as many tax-saving investment instruments as they can afford or require. In a nutshell, there is no such restriction on the instruments’ possession.
However, it would be best if you did not forget about the limit of deductions under which no one can claim tax benefits. If you wish to gather information about these limits, you must refer to various sections of the Income Tax Act.
You should remember that the majority of tax-paying investment plans fall under Section 80C of the Income Tax Act. Thus, as a taxpayer, you are eligible for an exemption of up to a maximum of Rs. 1,50,000. But for that, you must make your investments in the options mentioned earlier.