Top 5 tax saving investments in 2021

Top 5 tax saving investments for 2021

There's no rejecting that 2020 was a financially intense year for some individuals across the world. The ascent of the COVID-19 pandemic enormously affected saving and spending trends. Numerous individuals came to understand that saving for a dubious future was fundamental.

Your financial needs doubtlessly have additionally changed during the economic slowdown the COVID-19 pandemic caused. How about we investigate what this can mean for your tax planning investments for 2021. What are a portion of the non-debatable choices you can investigate? Are there any tax-savings techniques that you can profit by, especially?

There are a few choices accessible to you in case you're thinking about saving on your taxes in 2021. These savings choices are incredibly valuable to your future. Here are five helpful approaches to save tax with the correct venture plans for 2021.

1. Life and Health Insurance

Health and life insurance plans are of paramount significance - they secure your family's future financial requirements on account of an emergency. A life insurance policy is enormously advantageous for our dependents, particularly in the case that you are the sole earner of the family.

A life insurance policy will financially get the fate of your family, and empower them to pay off any financial expenses, just as keep a fair standard of living. The advantage of having health insurance is that it gives individuals much-required financial reinforcement on occasion of medical crises.

However long your investments for health or life insurance plans are under a sum of ₹ 1.5 lakhs, it is exempt from being taxed, under Section 10(10D) of the Income Tax Act. There are some conditions for tax exemption under Section 10(10D) which are as under:

(1) Tax benefit under Section 10(10D) is allowed if the premium is less than 10 percent of the sum or the sum is at least 10 times of the premium.

(2) If the payout surpasses Rs 1,00,000, and the policyholder’s PAN details are available to the insurer, a TDS (Tax Deducted at Source) of 1% is applicable.

Under section 80C of the income tax act, the premium paid for term life insurance is also allowed for deduction up to Rs 1.5 lakhs (the total of all the investments and payments under this section).

(Also Read: Short term investment vs long term investment)

2. Saving for Retirement

Among the plenty of tax-saving products in the market, a vital method to financially get your future is to utilize savings plans, for example, Bank Fixed Deposit, Public Provident Fund (PPF), National Savings Certificate, National Pension System (NPS), ELSS Funds, Unit Linked Insurance Plan (ULIP), Senior Citizen Saving Scheme (SCSS).

Utilizing these tax-saving instruments will give you significant serenity for any of your future financial requirements. NPS and PPF urge you to save with the goal that you can get to a normal pension in your retirement years.

The Public Provident Fund permits you to just put up to ₹ 1.5 lakh in one financial year. You can make this payment in 12 portions or less. This sans risk speculation alternative has a lock-in time of 15 years and furthermore generates a high-interest rate toward the finish of its tenure.

3. Mutual Funds and Equity-Linked Saving Schemes (ELSS)

Mutual funds are a genuinely famous decision used to save taxes. Contingent upon your financial objective, you can look over a scope of devices that best suits you.

Another elective speculation choice is Equity-Linked Savings Schemes (ELSS). ELSS has comparative favorable circumstances to that of mutual funds yet with the additional bit of leeway of being a tax-saving choice.

The champion component of this decision is that it has the most brief lock-in time of 3 years. A venture of up to ₹ 1.5 lakh in one financial year can be asserted as tax-deductible under Section 80C of the Income Tax Act.

4. Tax-saving Fixed Deposits

ULIPs or United Linked Insurance Plans have been noted to be the best venture choices in India. It offers you the double advantage of acting as a speculation just as an insurance plan.

For a ULIP, an insurance organization puts part of the premium in shares or bonds and the balance amount is used as an insurance cover. This isolation of the premium is taken care of by a fund manager utilized by the insurance companies.

Under Section 80C of the Income Tax Act, putting resources into ULIPs can help you save a generous amount when you are recording your taxes. ULIPs accompany a lock of a long term period, so it is fitting to design prior to putting resources into ULIPs.

5. National Savings Certificate (NSC)

To the extent fixed income tax savings go, the National Savings Certificate is a dependable savings scheme that is led by the actual government. You can open a NSC at any post office. This savings device is intended to urge mid-income society to contribute and is like Fixed Deposits or even the PPF. The NSC is a generally safe tax saving speculation choice.

There is no maximum limit on the purchase of NSCs, but only investments of up to Rs 1.5 lakh annually is allowed for the tax savings benefits under Section 80C of the Income Tax Act, 1961. Additionally, the interest earned on the certificates annually for the first 4 years are considered to be reinvested as such interests are added back to the initial investment and hence, also allowed for a tax break and subject to the overall annual limit of Rs 1.5 lakh. However, the interest received in the 5th year is not re-invested and it is taxable according to the investor’s applicable slab rate.

BONUS TIP: Declaring home or education loans are likewise two alternate ways by which you can be qualified for tax deductions. They are qualified for tax deductions under Section 80C of the Income Tax Act.