Almost every taxpayer is on the hunt to arrange their finances in a way that helps them save taxes. If you are one of them, know that there are options that act as tax-saving instruments that you can purchase. While their core benefits may differ, these products can help you earn tax exemptions.
Here are eight tax-saving instruments that you may find helpful if you are filing your taxes under the old tax regime.
ULIP is the abbreviated form of Unit-linked Insurance Plans. ULIPs are plans that are best known to offer dual benefits of life insurance and investment. This makes the plan suitable for anyone who seeks to start investing their money but also wants a life cover alongside, especially people who are beginners to investing. ULIP plans are said to be more suitable to be taken as a long-term investment rather than a short-term deal. Alongside life cover and wealth creation, you can also gain tax benefits from these plans.
PPF, or Public Provident Fund, is another long-term wealth growth plan. It is offered by the Government of India for the citizens of the country. Irrespective of where you are in your career or how much you are earning, you can opt for this plan, as the minimum contributions start at Rs. 500 per year. If you want to maximise your savings through this plan, you can deposit as much as Rs. 1.5 lakh per year into this plan. Besides being a tax-saving instrument, it can also help you save for your long-term goals, such as superannuation, by acting as a retirement plan.
- Fixed Deposits
If you want one of the most low-risk options, whether you are not ready to run the risk yet or you want a back-up saving of some sort, you can choose fixed term deposits with banks. These deposit accounts can be maintained for a period as low as seven days. However, if you want this to be a tax-instruments that allows you to earn tax exemptions on your savings while also allowing them to grow over time, you may be required to create a fixed deposit for a duration of at least five years. Most banks offer this service. However, you may first be required to have a savings account with the bank to be able to create a fixed term deposit.
- Health Insurance
There are a lot of aspects to taking care of your health. One of them is financial. Most people do everything in their power to avoid health-related mishaps. However, if any health emergency were to arise, you would like to stay financially prepared to face it and be able to recover from it. Buying health insurance can help you with this. In addition to giving you the financial support you may need during a health emergency, a health plan can also act as a tax-saving instrument.
- Life Insurance
There are a number of life insurance plan types available in the market today. Most of them can be purchased online as well as offline. A life cover helps you keep your family safer in their dire times. In addition to this, most policies are eligible for tax exemptions on premiums. Some may even offer tax savings on the death benefits earned from the policy. If you want to keep your life insurance policy simple, you can buy a term insurance plan. These plans are known to be low-cost and thus, accessible to a wider range of people. You can buy a term insurance plan for the tax-saving benefits, but it is ideal to consider the core benefits it offers before you make the purchase.
The National Pension Scheme is another programme offered by the Government of India that can act as a retirement plan. Citizens between the ages of 18 to 70 years can start contributing to this plan. You can choose from multiple tiers offered here. The minimum contribution for a Tier-I NPS account is Rs. 6000. 10% of the basic salary plus the DA component can be claimed as an NPS contribution. The maximum tax amount that can be claimed for this is Rs. 1.5 lakhs.
SCSS, or Senior Citizen Savings Scheme, is also a retirement scheme offered by the government. Participation in the plan is voluntary and people can choose to make contributions as low as Rs. 1000 per year or as high as Rs. 15 lakhs annually. Contributors are offered the same interest rate throughout the duration if they stay invested in the scheme.
If you want to invest in mutual funds in an aligned manner, Equity-linked Savings Schemes may be the plan for you. Besides being a disciplined way to stay invested in mutual funds, ELSS also offers you tax savings. These plans usually come with a lock-in period of three years.
Remember that most tax exemptions are only applicable if you have opted for the old tax regime. There are no tax exemptions available under the new tax regime. Hence, these tax-saving instruments will only work if you are filing your taxes under the old tax regime. You may consult your tax advisor regarding which of these options are right for you.