Whether you are a loyal taxpayer or a first timer, if you haven't been planning your taxes, you will end up paying more tax than you should. When only three months are left for April 1, unofficial tax saving season is already here when both salaried and non-salaried taxpayers start going through the tax saving investment options for the financial year 2018-19.
Like an ideal investor, you would be looking for investment options that not only help you save tax but also generate tax-free income. Often income tax laws appear so complex that paying income tax at the end of every financial year becomes challenging for many people. Choosing the right tax saving plans includes several factors, like safety, liquidity, and returns. When there are tax saving tools available, it is unfair to let your employers drain plenty of money as TDS from your salary.
How to save tax in India 2018-19?
Traditional savings cum life insurance plans - a saving cum protection oriented traditional life insurance plans fall in this category. Saving plans not only assist you financially by guaranteeing returns in the form of regular payouts but also comes with tax benefits on all premiums paid and payouts. High returns often come with high risks. However, saving plans are one of the safest ways to let your money grow. It gives you a guaranteed regular stream of income. Other perks of saving plans include - guaranteed benefits (if all the due premiums are paid) and immediate guaranteed payout in case of loss of life, thus combining the life insurance and investment providing the best protection net for your family.
Term insurance plans - the purest form of life insurance is the best way to secure the life goals of your loved ones. The section 80C of the Indian Income Tax Act allows exemption for life insurance premiums up to Rs. 1.5 Lakh per annum and so a term plan is eligible for tax deduction. Unpleasant surprises are part and parcel of life,and a term plan enable you stay prepared for unpredictable incidents. A protection oriented life insurance plan, for example, Aviva i-term smart is packed with multiple benefits and is the cheapest term plan in market:
- Critical illness and disability rider - Covers 16 critical illness & permanent total disability due to illness or accident and helps you boost your existing plan
- Sum assured - (Min 75 lakhs to 25 crores) In case of unfortunate loss of life of the insured
- Option to increase base sum - Give policyholder a chance to stretch the level of protection with an increase in financial liabilities
- Flexibility to choose premium frequency - From yearly, half-yearly to monthly
After life insurance, health insurance is a smart plan every person should have in his/her portfolio. Just like life insurance, a health insurance policy serves as an efficient tax saving scheme. In additional with the medical benefits of health insurance, a health insurance policy reduces a taxpayer's annual income tax liability to the premium paid. Also, it also makes you eligible for income tax exemption for a premium paid for not only the insurer but also his/her family and parents. Under Section 80D, you are allowed to claim a deduction up to Rs. 25,000; the limit goes up to 30,000 for senior citizens. Moreover, you get tax reduction on annual health checkups up to Rs. 5,000 inside the aforementioned limit Rs 25,000 (or Rs. 30,000). You are additionally qualified for deduction of Rs. 25,000 every financial year if you are paying medical insurance premium for your parents. If your parents are senior citizen, this limit goes up to 30,000 a year. If you are already covered with a policy provided by your employer, you can boost it with suitable plans, for example, Aviva heart care - the only policy in India dedicated to the heart and covers both you and your spouse. It is a non-linked, non-participating health insurance plan that covers 19 heart conditions and also offers loss of income. Other benefits of this plan are - fixed payout irrespective of the cost of treatment, multiple claims under a single policy, and double the coverage with you and your spouse, sustained coverage with waived premiums.
Equity-linked savings schemes come with guaranteed features - first, investment amount qualifies for tax benefit up to a limit of Rs. 1.5 Lakh a year and second the amount invested has a lock-in period of 3 years. The lock-in period of a mutual fund is lower if compared to fixed deposit and PPF. However, it offers huge return on investment.
Unit-linked insurance plans are a good combination of investment and protection under a single plan. Financial investments done under ULIPs are eligible for tax deduction. It not only let your money grow but also comes with multiple attractive features, like - multiple fund options with varying asset allocation between equity and debt, policy terms, waiver of premium, etc.
Public provident fund (PPF)
PPF scheme has one of the trustworthy saving avenues for Indian investors and still has the credibility. Though PPF offers 8.0% (currently) interest rate, it offers a huge taxable return. A PPF account can be activated with a minimum amount Rs. 500 and the maximum amount that can be deposited in a financial year is 1.5 lakh. PPF is a long scheme with a lock-in period of 15 years.
Being a responsible citizen, you must pay taxes. However, you should not pay more tax than you should. Multiple tax saving schemes enable you save more tax than you can imagine. Start using them and optimize your tax life.