Using the Extended Tax-Saving Deadline Wisely

Tax planning is essential so that you can file your investments well before 31st March 2023 for FY 2022-2023. Here’s how you can start investments in different tax saving avenues:

These investment options involve risk as the returns are based on the prevailing marketing conditions. Let’s look at some of the tax saving options:

1. Equity Linked Saving Scheme (ELSS):

This is an open-linked mutual fund scheme that allows tax savings under Section 80C of the Indian Income Tax (IT) Act. ELSS has a lock-in period of 3 years. You can start investing via a Systematic Investment Plan (SIP) or lump sum. The returns are market-linked. ELSS involves a certain amount of risk as it involves equity and equity-related assets.

1. National Pension Scheme (NPS):

Planning for retirement? NPS is a tax saving investment and pension scheme. The scheme provides two different accounts. Tier 1 Account is a mandatory account if you are investing in NPS. You can claim for tax deductions up to INR 1.50 lakh under Section 80C. This helps you create a sizeable retirement corpus and purchase a life annuity. On the other hand, Tier II Account is optional. You can opt for it only if you have a Tier 1 Account. Both account types require you to invest a minimum of INR 1,000 per year. 

1. ULIPs:

Unit Linked Insurance Policy (ULIP) requires you to pay a premium just like life insurance; however, they work in a different way. It offers dual benefits – insurance coverage & investment. One-half of the premium goes towards insurance coverage while the other half is invested in market-linked financial instruments. ULIPs have a lock-in of 5 years  

If you are looking to build a corpus for the future & achieve financial goals like retirement, buying a house or others, you can opt for risk-free tax saving investment options. Below are some of them: 

1. 5-Year Tax Saving Fixed Deposit:

Investment in 5-Year Tax Saving Fixed Deposit is one of the best investment options. It helps you save taxes up to INR 1.50 Lakh under Section 80C of the IT Act. This type of FD has a lock-in period of 5 years. You can start investing a minimum of INR 1000 while earning attractive returns at the rate of 7.20% p.a. For retirement, senior citizens can also invest in 5-Year Tax Saving FD to earn up to 0.50% p.a. higher on the existing rates.

1. Public Provident Fund (PPF)

PPF is a long-term tax saving investment option. It enjoys the tax status of EEE, i.e. Exempt-Exempt-Exempt. You enjoy tax deduction under Section 80C, the interest is tax-exempt, and even the maturity amount is tax-free. You can avail tax deductions up to INR 1.50 lakh under Section 80C. It has a minimum lock-in period of 15 years. You can invest as little as INR 500 or a maximum of INR 1.50 lakh in a year.

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Based on the type of policy you choose; you can save taxes on the premium paid towards the policy under Section 80D of the IT Act:

There are several types of Life Insurance Plans including Term Insurance, Endowment Plans, Money Back Plans, and others that allow you to save taxes up to INR 1.50 lakh on the premium paid towards the policy under Section 80C. The premium amount is decided based on the age of the policyholder, tenure, sum assured, etc. AU Small Finance Bank offers a range of Life Insurance Plans in collaboration with its partners. 

In conclusion:

When you are planning for tax savings, you should ideally opt for investment options that complement your risk profile, tax planning and investment goals.

The above blog is published on 29th January 2023