As the financial year nears its end every year,taxpayers start looking for tax saving instruments available.There are lots of conventional options available for the individual taxpayers and are quite popular among them ; most common of them being Public Provident Funds(PPFs),Life Insurance Schemes and National Savings Certificates or NSCs and we are not going to discuss them here (I assume everybody knows about them).
No doubt,all these are good options as tax savers but these are not considered good for savings nowadays.The disadvantage with them is that they provide lower rate of returns as compared to other options available which fails to beat the Inflation.Hence effective yield become much lower when compared.
It would be a nice strategy if we add another goal of Investment for creating wealth along with primary purpose of Tax Saving with the amount we wish to use for tax saving.Another aspect is to invest in your and your dear one’s health and also get the benefit of tax saving.How can we do that,lets see.
1. Equity Linked Savings Scheme or ELSS :- It is a type of mutual fund investment where you have the luxury of making investment in small regular instalments in tax saving funds.Minimum lock in period is only 3 years compared to 6-8 years in others.To get best results,you should start investing from day one of the financial year in monthly intervals and don’t wait for the end of the year to invest.Also look to give longer than 3 years period for the ELSS to show you the wonders.Remember,it is market related and has risk associated with it but if you keep it for minimum five years,it has the potential to give you returns above 12-14% if calculated annually.You can read more about ELSS here.It is tax exempted under section 80c of Indian Income Tax Act.
2. Unit Linked Insurance plans or ULIP’s :- ULIP’s provide dual benefits of tax saving and investment in market in addition to insurance.The drawback with ULIP’s is high cost in the initial years and long term holding period which can be 15-20 years.If you can afford to keep investing year by year and hold it for 20 years , you can earn handsome returns.The cost of buying goes on decreasing every year and the initial cost are also liable to be recovered as longer term investment in equity has the potential to beat all other assets return wise.Tax saving in this tool falls in ₹ 1 lac limit.
3. Long Term Infrastructure bonds :- Investments in long term infrastructure bonds tax exempted up to ₹ 20000.They have fix rate of return which is little more than routine tax savers and the holding period is around 10 years and lock in period is 5 years.The savings in these bonds is above the limit of ₹ 100000.You should invest in these bonds only after you have exhausted your ₹ 1 lac limit.
4. Health Insurance :- if you have not bought health insurance or medical insurance yet,you should look seriously towards it now and buy one for yourself and your loved ones.You know how costly the medical services are getting now and nobody knows when he or she has to seek it.The premium you pay is exempted from taxable income up to ₹ 15000-20000 and it is above that ₹ 100000 limit.Moreover,you can buy health insurance for your parents and get additional benefit up to ₹ 20000.