This is a life insurance policy that is slowly gaining popularity. Under ULIPs your premiums are invested into the debt or equity markets according to your preference and risk appetite. Therefore these plans offer the insured person three benefits, the first is of course the life insurance cover, the second is the return on investment one stands to receive as part of these plans and the third is it doubles up as a tax saving investment. Under section 80C of the Indian Income Tax Act, 1961, tax deductions are available on ULIPs to the tune of up to 10% of the sum assured or the annual premiums, whichever is lower, subject to a cap of Rs. 1,50,000. You can also include service tax and any other charges levied by the insurer to build your deduction amount.
Second, Public Provident Fund or PPF:
PPFs are one of the safest investment options available to the masses these days. With an interest rate of 7.9%, PPFs don’t give you much in terms of return on investment; rather they’re more like a mode of saving that just about keeps up with inflation. But it’s only when you consider the tax saving benefits of PPF do you realize the potential of this investment. Under section 80C of the Income Tax Act, 1961, PPF contributions made every year are eligible for tax deductions. And just like ULIPs, the cap for deductions is Rs. 1, 50,000. The best part is that the maximum deposit under PPFs is also Rs.1.5 lakhs per year and so your entire deposit can be claimed for tax deductions. That’s not all, apart from the deduction on deposits, the interest received is also exempted from taxation and wealth tax is also not applicable on PPF. Thus PPFs offer potential customers a triple benefit tax saving investment option.
These plans are also a form of life insurance but their end objective is a little different. Where normal term life insurance plans offer a payout on the death of the insured person, pension plans also provide a sort of income source if the insured person out-lives the tenure. How does this qualify as an investment instrument you might ask? Well on maturity, one third is received as a maturity benefit, the other two thirds is invested into equity or debt market to bring you a return on investment and a means of income. Again, under section 80C of the Income Tax Act, 1961, the contributions made toward the pension plan can be used for tax deductions. The maximum limit for deductions is again Rs. 1, 50,000. On maturity, one third of the amount received as a maturity benefit is exempted from taxation. The other two thirds will be subjected to marginal tax rates. So not only do you get life insurance cover and a payout in case you die within the tenure of the policy, you also get a steady income post retirement and a great tax saving investment too!
This is probably one of the best investment options out there, investing a sum of Rs. 50,000 under ELSS would see your money almost double to Rs. 97,000 in three years. Three years is also the minimum lock in period, which is probably the smallest lock-in period among the other investment options stated in this article. Coming to tax saving benefits, again this will refer to section 80C of the Income Tax Act, 1961. With ELSS, there is no limit to the amount you wish to invest, but the deduction will be capped at Rs. 1, 50, 000. Making it a booming investment option as well as a tax saving investment to consider!
These were just four of the tax saving investments you can choose from. But before you invest in any of them, it’s advisable to speak to a financial expert to learn the intricacies involved.