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Keep your taxes in check, invest wisely.

When you start earning money and then make efforts to make your money grow, it is important for you to understand tax planning.

While taxes have to be paid to keep the wheels of the economy rolling, the government does offer several deductions that encourage long-term investments, savings, and retirement planning. Deductions are available on home loans, education loans, insurance, and even medical bills and donations to charitable organizations.

Use the list below to see where you can claim deductions: for a rupee saved is a rupee earned. And the more of your money you put to work for you the faster you will travel towards your financial goals.

Remember the ideal time to plan for tax-saving investments is the start of a financial year, so you can save on advance tax and put the money to work for yourself. But, it is never too late. Start your tax planning as soon as you can, that is definitely better than not doing it at all.

Take a look at the tax-saving investment options, pick the ones that are best suited for your profile. Do keep in mind to review these options not merely on tax saving but also from an investment perspective. Here are your best tax saving options for FY 2021-22:

1. Unit Linked Insurance Plan (ULIP)

This insurance plan is the most popular one in India, which lets you invest in insurance and gives you the benefit of growing your investment as well. It helps you secure the financial future of your family in the event of death. And the taxpayer can avail of tax benefits under section 80C of the income tax act 1961.

Under this section, the premium paid towards the purchase of a life insurance policy qualifies for deduction up to Rs. 1.5 lakh. Furthermore, as per section 10(10D), income on the maturity of the policy is tax-free. The income is tax-free if the premium is not more than 10% of the sum assured. In the case wherein the money goes to the nominees of the person insured, the same remains as a tax exemption in the hands of the nominee.

In terms of the deduction under section 80C 1961, tax deduction of 20% can be claimed on the premium paid under the following conditions:

  • The taxpayer has purchased a life insurance policy on or before 31st March 2012
  • The policy is in own name or in the name of spouse or child

If the life insurance policy is purchased after 1st April 2012, then the premium paid is eligible for tax deduction up to 10% of the sum assured.

2. ELSS Mutual Funds

Equity Linked Savings Schemes are mutual fund investment schemes that invest a large percentage of their portfolio in equity. The fund has a mandatory lock-in period of 3 years which is the shortest amongst all the investment products.

Investment in ELSS funds qualifies for deduction under section 80C of the income tax act up to a maximum of Rs. 1.5 lakh. Both lump sum investment and the amount invested through a systematic investment plan (SIP) qualifies for the deduction. ELSS funds are subject to market risks, so do your due diligence before investing.

3. Public Provident Fund (PPF)

You can invest in the Public Provident Fund either through your employer or independently. The amount invested, interest, and maturity amount are all tax-free. This instrument has a lock-in for 15 years, but you can take a short-term loan from the third to the sixth year.

4. Sukanya Samridhi Yojana (SSY)

Launched in 2015 by the Government of India, the scheme allows a fixed income investment through which the taxpayer can invest regular deposits in the name of a girl child under 10 years of age at the time of opening the account. Investing in Sukanya Samriddhi Yojana also qualifies as an eligible deduction under section 80C of the income tax act.

The government of India determines the rate of interest on the scheme on a quarterly basis and is payable on maturity. The scheme comes with a lock-in period of 21 years and will mature after the expiry of 21 years. A minimum deposit of Rs. 250 is required to be made per year for 15 years.

5. National Savings Certificate

A Government of India initiative, a national savings certificate is a fixed income investment scheme aimed at small and middle-income investors to invest.. It is considered a low-risk investment and as secure as the Provident Fund. The investors can invest as per their income profile and investment habits.

Investment in NSC qualifies for deduction under section 80C of the income tax act up to Rs. 1.50 lakh. Apart from providing the benefit of tax exemption, it provides the investor with complete capital protection and guaranteed interest. On maturity, the entire maturity value will be received by the investor and the same will be taxed in the hands of the taxpayer. An early exit is not available. You can use the same as collateral security in case of loans from Bank or NBFC.

6. Tax-savings fixed deposit

Fixed deposits, one of the safest tax savings schemes, are eligible for deduction under section 80C while calculating the taxable income. This comes with a minimum lock in of 5 years, premature withdrawls are not permitted.

7. Senior Citizen Savings Scheme

A Senior Citizen Savings Scheme is an income tax saving schemes available to senior citizens who are residents in India. The scheme is available for investment through banks and post offices and offers one of the highest rates amongst the various savings schemes.

Depositors can make an investment with a minimum amount of Rs. 1000 and in multiples thereof. The scheme also provides the facility of investment through cash provided the investment amount is less than Rs. 1 lakh. The deposits made into the scheme mature after a period of 5 years. The depositors also have the option to further extend the maturity period by another 3 years. Investment in the Senior Citizen Savings Scheme qualifies as a deduction under section 80C up to Rs. 1.5 lakhs from the taxable income. The interest on such deposits is fully taxable and liable for a tax deduction if the interest is above Rs. 50,000. Deposits made into a Senior Citizens Savings Scheme account are compounded and paid out annually.

8. School Tuition Fees

Tuition fees paid to any registered university, college, school, or educational institution qualify for deduction up to Rs. 1.5 lakh under section 80C of the income tax act. Only the tuition fees qualify for deduction under the income tax act. Any other fee like donation, development fee, etc. even if paid to such an institution does not qualify for the deduction.

9. National Pension Scheme ( NPS )

Build a corpus for your retirement along with regular monthly income via NPS or National Pension Scheme. This tax saving investment option can be availed of by both government and private employees.

There are two types of NPS accounts, Tier-1 & Tier-2. Only investments made under tier-1 account are considered for deductions under section 80CCD(1) and 80CCD(1B). Additionally, a new sub-section 1B was also introduced, which offered an additional deduction of up to Rs. 50,000/-for contributions made by individual taxpayers towards the NPS.

10. Health Insurance Premium

You can claim a tax benefit up to Rs. 25,000 under section 80D for monies paid towards health insurance premium covering self, spouse, or dependent children. Additional benefits are available for medical insurance purchased for parents. The benefit is subject to the age of parents and also the age of the senior-most family member.

11. Repayment of an education loan

If you or your child are repaying an educational loan, the person making the payment can avail of a tax deduction under section 80E of the act. Once an educational loan is availed, the interest paid on the education loan qualifies for a tax deduction for a maximum of 8 years, or the interest is repaid, whichever is earlier.

12. Rent paid and no HRA received:

Generally, HRA is a major tax saving scheme while filing income tax returns. In case it does not form part of your salary, under section 80GG, you can claim the deduction of rent paid. This deduction is valid for self-employed or salaried; and neither you, your spouse, or the HUF in which you are a member does not hold any residential accommodation at a place where you currently reside.

13. Interest paid on home loan

If you have a running home loan taken for the purchase or construction of a house, you can claim the interest component on a housing loan as a tax deduction under section 24 up to Rs. 2 lakh.

14. Savings bank account Interest

If you have money lying in FDs that is earning you interest, this interest is taxable. The maximum deduction under section 80TTA is Rs. 10,000. Any interest earned above this amount is taxable at your regular tax slab.

15. Medical expenses towards disabled dependents

As per the provisions of section 80DD, a taxpayer can claim a deduction if they are looking after disabled dependents. Disabled dependents include spouses, children, parents, or siblings (brother or sister). In the case of HUF, a disabled dependent may be a member of the Hindu undivided family. Below are a few of the disabilities:

  • Blindness
  • Low vision
  • Hearing impairment
  • Mental illness
  • Autism
16. Treatment of specified diseases u/s 80DDB

A deduction under section 80DDB is allowed to a taxpayer wherein a case they have contracted diseases such as cancer, neurological diseases such as dementia, motor neuron disease, parkinson’s disease, AIDS, etc.

A deduction under section 80DDB is allowed to a taxpayer wherein a case they have contracted diseases such as cancer, neurological diseases such as dementia, motor neuron disease, parkinson’s disease, AIDS, etc.

17. Donations made to charitable Institutions

Section 80G provides a tax deduction to the taxpayer with respect to the amount paid by them to an approved charitable organization. The donations made to such organizations should be made via cheque or online transfer. Cash transfers, above Rs. 2,000 do not qualify for deduction under this section. It is very important to take the stamped receipt from the organization wherein the donation has been made in order to claim the deduction.

Depending on the type of organization where a donation has been made, the tax deduction under section 80G can be either 50% or 100% of the donation amount. However, the same is restricted to 10% of the adjusted gross total income of the taxpayer.

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