The season of tax saving has arrived, every taxpayer is hunting for investment plans that can help him/her to save tax. When it comes to investments, you definitely want to go with the best options that can save tax and also give you tax-free returns. You cannot simply invest in a plan that claims to save tax; you need to go through the plan thoroughly and check for various factors like safety, returns, and liquidity.
Various plans in the market only offer tax saving for the current year, but the returns offered by such schemes are taxable. Let’s discuss some wonderful investment plans that can save you tax for the current year and also ensure tax-free returns. However, all the plans are different in their own ways, so read carefully and select the right plan for you.
- Public Provident Fund (PPF)
This is one of the favourite savings schemes of investors for decades. The success of this plan goes to the guarantee provided to the principal amount invested and interest amount earned. And top of that, the returns are 100 percent tax-free. Currently, under Public Provident Fund, investors are entitled to get an interest rate of around 7.6 percent per annum.
- Equity-Linked Savings Schemes (ELSS)
ELSS investment is one of the best schemes to save tax as it also provides you tax-free returns. You can claim a maximum tax deduction of Rs 1.5 lakh in a year under section 80C of Income Tax Act. In ELSS investment, the invested amount is locked for a period of 3 years, which means you will not be able to withdraw it during this period. The returns in ELSS investments are not fixed and depend on the performance of equity markets.
- Employee’s Provident Fund (EPF)
This plan is best suited for salaried individuals as it not only provides a chance to save their tax but also the returns are completely tax-free. A 12 percent share of the basic salary of the employee is invested in EPF account, and an equal share comes through employer’s contribution.
The contribution made by the employee towards his/her EPF account is exempted from tax with a limit of Rs 1.5 lakh per annum under the section 80C, but the employer’s share is taxed. Presently an employee can earn around 8.55 percent interest rate per annum on his/her EPF account.
- Unit Link Insurance Plan (ULIP)
ULIP is one of the most popular investments that provides both protection and investment feature. As the name suggests, this plan provides life insurance, and your money is invested in various funds like equity, debt or balanced. The performance of the invested assets decides the long-term returns. Normally, a ULIP plan is for a term of 15 to 20 years, and the returns that you get after the maturity are completely tax-free.
- Term Insurance
Traditional insurance plan like a pure term insurance plan, having a fixed term and a fixed sum assured, is also a good tax-saving option. Considering the uncertainty of life today, the term plan offers more than just tax-saving; it financially guards the future of your loved ones in your absence. The premium paid towards the term plan qualifies for tax benefit under section 80C, up to a maximum amount of Rs 1.5 lakh. Furthermore, the death benefit is also tax-free.
In conclusion, one can say that the plans mentioned above will help you save tax and thereby maximise your savings. So, know your requirements and buy the right investment plan that not only caters to your tax-saving needs but also your life goals.