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The first question that is thrown up to you when you become a Chartered Accountant is "Yaar, Tax bachane ke liye kyan kren" (What should we do save Tax?). This question reminds me that even after so many Investment Experts/Financial Planners are available in market, people are still confused when it comes to choosing the correct and best investment suitable for their upcoming Financial Needs. Through this Article I will be focusing primarily on Investment avenues that can help to serve the following purpose:

  1. Lower the Tax Liability and,
  2. Savings

The most important section in Income Tax Act, 1961 that lays down the various products/options available to taxpayers is "Section 80C".  The total admissible deduction under Section 80C is Rs.150,000. Now I will list down and explain some of the most widely used options: 

Tax Saving Investment option available to Salaried Individuals

1. Life Insurance

It is an insurance product which aims to make good the loss. Life Insurance can further be categorized into various segments each having its own benefits such as,

  • Endowment Life Insurance Policies: In case the insured survives till the Policy Term, he/she will received the Maturity Proceeds (Sum Assured + Bonus/Loyalty Additions).
  • Term Life Insurance Policies: The Payment is made only in case of any mishappening i.e., Death or in some cases Disability as well. People nowadays are subscribing for this type of Policy because of the amount of Sum Insured (10 Lacs to 20 crores) and lower premium.
  • Unit Linked Life Insurance Policies: It is a mixture of Insurance and Wealth maximization product where the Insurance company invests the Premium in Fund Managed by them (Just like Mutual Fund) by itself so the Insured can get benefit of Financial Security and Financial Growth.

2. Public Provident Fund

It is a Long Term Savings Investment option having a minimum lock-in (Tenure) Period of 15 Years. The minimum investment amount is Rs. 500 and maximum should be Rs.150,000 in a year. Any Investment above Rs.150,000 is not eligible for Interest calculation and for Tax Deduction. The Interest Rates are decided by Ministry of Finance every year (the latest being 7.1% p.a.). To start with PPF, a PPF account needs to be opened with Post Office or approved Banks.

3. Employees Provident Fund

This is something that most of the employees are aware of. It is a Long Term Investment aiming towards Retirement corpus. There are two components of EPF - Employee Contribution (12% of Basic Salary ) and Employer Contribution (Exact amount what employee contributes but limited to 12% of Basic Salary). While Employee contribution is deducted from the Salary, Employer Contribution is over and above the remuneration. The important point to be noted here is that EPF allows for Voluntary Contribution apart from mandatory deduction. For the Financial Year 2020-21, a rate of 8.5% will be paid on EPF accumulations.  

 

4. Fixed Deposit

The most common and traditional investment will always be Fixed Deposit (FD) where a Fixed Sum of money is deposit in an account earning periodic interest. The tenure of FD ranges between 30 days - 10 years. The Minimum Tenure required for availing Tax deduction is 5 Years. Post-Pandemic the interest rates offered by Banks and Financial Institutions is quite low and this is the reason FDs are not getting much of attention nowadays. But even then it is safest savings product one can have in his/her Portfolio. 

 

5. Equity Linked Savings Scheme

This is nothing but Mutual Funds where exposure in Equity (Shares and Stocks of Listed Companies) should be 65% or more. There comes a lock-in period of 3 years for ELSS Investments. 

I hope the above article will aware them about the Tax-saving option available as per Taxation Law. I have just given a brief explanation about the most common ones. For detailed information about any of the above, Please let me know through comment option below.

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Category Taxpayers, Other Articles by - Rishabh Khandelwal 



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