Tax Saving Investments in India
Investing in tax-saving financial channels will help you reduce your taxes under the Income Tax Act of 1961 (ITA). Careful planning also allows you to align such investments with your financial goals. From protecting you from financial problems to creating wealth, such investments play multiple roles.
Below is an overview of the various tax-saving investments so you can get the most out of such tools.
Term Insurance
Term life insurance is an important financial tool for a high earning individual. It helps to secure the financial future of one's family in case of an unfortunate event. Below you will find the sections on ITA, which will allow you to save taxes if you choose term insurance:
Benefits under 80C*: Term insurance is a form of life insurance. Under current tax laws, life insurance premiums are deductible from taxable income under Section 80C. You can claim deductions of up to 1.5 lakh for premiums paid annually.
Benefits under 80D*: If you opt for term life insurance with a term plan, you can claim a deduction under Section 80D.
Benefits under 10(10D)*: The indemnity amount is tax-free under the terms of Section 10(10D).
Endowment Plans
Endowment life insurance policies are designed for your long-term goals such as retirement, home purchase, children's education and more. They are designed to encourage a disciplined savings habit and help you achieve your long-term goals. They offer the dual benefit of growing your money and protecting you in the event of an unfortunate event.
Similar to term insurance, ULIPs allow you to save taxes on premiums paid by claiming a deduction under Section 80C and on the amount received at maturity, subject to the conditions set forth in Section 10(10D)*.
ULIP
ULIPs offer the dual benefit of asset growth and security for the financial future in the event of an unfortunate event.
The long-term nature of the instrument allows you to invest funds for your life goals, such as children's education, marriage, and the purchase of real estate.
At the end of the contract term, you will receive the current fund value of your investment. However, if an unfortunate event occurs during the term of the contract, your authorised representatives will receive the sum insured.
Similar to term insurance and endowment insurance, ULIPs allow you to save taxes on premiums paid by claiming a deduction under Section 80C* and on the amount you receive when due, subject to the conditions set forth in Section 10(10D)*.
Tax Saving Investments in India 2022.
Pension Plans
Annuity plans are designed to provide a steady stream of income after retirement. A person may claim deduction of investments made from taxable income under Section 80CCC up to ₹ 1,50,000/-. It should be noted that the deduction limit under Section 80CCC* is merged with Sections 80C and 80CCD(1) of ITA, essentially capping the total limit at ₹ 1.5 lakh.
Similar to term insurance, ULIPs help save tax on premiums paid by claiming a deduction under Section 80C and on the amount received on maturity, subject to the conditions specified in Section 10(10D)*.
National Pension Scheme (NPS)
Designed to build retirement funds through systematic investments in the capital market, the NPS offers double tax benefits. Investments up to an amount of 1.5 lakhs are deductible under section 80CCD(1)* of ITA. In addition, a further deduction of ₹ 50,000 applies under Section 80CCD(1B)* of the ITA.
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