Here are the top 5 income tax saving plans you need to know about

One-line description: Planning for the next financial year early can ensure optimized tax savings for the future. Here is a look at some tax saving plans that must be a part of your financial plan.

Investing for tax savings sounds like a perfect plan that ensures optimal investment and lower tax. However, the selection of such investments should not be based only on the tax saving aspects alone. The risk of investment, the possible returns, investment cost should all be considered.

Therefore, ensure that you keep yourself updated on tax saving aspects of various investment options and start investing early in the financial year for best results. Moreover, there are many resources you can use, such as an online tax calculator to plan your finances and tax savings efficiently.

1. Life insurance

Life insurance may not be a pure tax saving plan but offers tax incentives over and above its protection component. The amount you pay as a premium for a life insurance plan qualifies for tax deduction under Section 80C of the Income Tax Act. Moreover, any lump sum claims that you may have received as a beneficiary are also not taxable under section 10(10D) of the IT Act. There are a wide range of plans including term insurance, unit linked insurance plans or ULIPs, endowment plans as well as money back insurance plans depending on your protection and investment needs.

Aegon Life iInvest Plan is an ideal plan, which offers the combination of investment and protection. It invests 100% of the premium you pay, thereby maximizes the returns. It gives you options of 6 different funds to choose from based on your investment goals, and pays the higher of sum assured or fund value or 105% of all premiums paid.

2. Health insurance

Did you know that health insurance plans can not only safeguard you against possible health risks and high medical costs but are also are your best friend when it comes to tax saving plans? Health insurance premiums that you pay for the year allow your tax benefits under Section 80D of the Income Tax Act.

As an individual below 60 years of age, you can avail deductions for up to Rs. 25,000 for premiums paid for health insurance for self, spouse, dependent children or parents. For optimum savings you can combine your health insurance plan with that of a senior member of the family allowing for a deduction of Rs. 55,000 from your taxable income. It’s no surprise that plans like iCancer Plan a popular cancer protection plan from Aegon Life Insurance is helping families save both medical costs when met with a critical illness like cancer, and taxation, underlining the importance of health insurance.

3. Public Provident Fund

Public Provident Fund or PPF is one of the rare financial instruments offering both assured returns and tax deductions based on its Exempt, Exempt, Exempt (EEE) financial status. Since a PPF account can be opened with as low as Rs. 100, it is a good investment tool for all sections of society. You can invest up to Rs. 1.5 lacs either a lump sum payment or in 12 monthly installments for a 15-year lock in period. Not only is the interest tax free, the whole deposited amount offers tax deductions under Section 80C making it a great income tax saving plan.

4. ELSS

Equity-Linked Saving Scheme are open ended mutual funds offering tax benefits under Section 80C of the Income Tax Act. While there are no guaranteed returns, the high-risk investment in equity markets means that returns are usually better than most debt funds and other conservative investment options. With a short lock in period of 3 years, ELSS offers both genuine returns and tax deduction options. While there is a 10% tax on long-term capital gains beginning 1st April 2018, the post-tax returns are still substantial to consider investment.

5. Sukanya Samriddhi Yojana (SSY)

Sukanya Samriddhi Yojana (SSY) is another investment tool that is built around the Exempt, Exempt, Exempt model. You can now save money for the higher education and marriage of your girl child and attain tax benefits as a result. Investments made in the SSY scheme are eligible for deductions up to Rs. 1.5 lacs under Section 80C. The interest received and maturity proceeds both are also tax free making it a viable investment option.

Conclusion

To optimize tax savings, choose from amid the list of financial instruments given above and opt for the ones as per your investment horizon earlier in the financial year rather than at the last minute.

I am a financial advisor. I specialize in taxes and income planning.