Tax saving tips for the new financial year

Want your investments to make money as well as save tax for you? Anil Rego has some advice

Illustration: Uttam Ghosh/Rediff.com

The advent of the new financial year brings forth with it the desire to invest wisely and the resolution to save more tax. 

So, the time is ripe to educate yourself on the tax savings investment options that are available. 

Here are few tax-saving investment options:

Section 80 C

The combined limit of investing in tax saving instruments under section 80 C is Rs 150,000.

There is a plethora of investment options which are eligible for tax exemption under section 80 C. Some of these options which play the dual role of tax savers as well as investments are elaborated below:

1. ELSS or equity linked savings scheme

ELSS are tax saving mutual fund options which come with a three-year lock in period. They are a good option to consider as one can invest small portions monthly through the SIP (systematic investment plan) and reap decent returns.

Good ELSS schemes give a compounded annual return of over 15 per cent, consequently making ELSS a lucrative tax saving instrument.

ELSS options should figure in your scheme of tax-saving instruments.

2. Money back life insurance policies

Protecting one's life is paramount and insurance cover is an important investment to make. Taking additional insurance policies to ensure that one's liabilities are taken care of, is a smart move.

Whether one is taking a life insurance cover for the first time or taking additional protection, money back policies are an attractive investment option which also provide tax-saving benefits.

Money back insurance policies, as the name suggests, provide money at periodic times during the policy term. This money can be used to cater to any planned (or unplanned) expense or be further invested to get more returns.

Either way, investing in money back policies is a win-win!

3. EPF/PPF

Employee Provident Fund or Public Provident Fund contributions are eligible for income tax exemption. In case you do not have an EPF or PPF account, it is good to open one this year.

If you already have one, it makes sense to increase your contribution as you get assured returns and the lock-in period ensures that you get a lump sum at the time of exit.

In an indirect way, EPF or PPF should also feature in your retirement planning.

4. Bank FDS

Tax exempted bank FDs come with a lock-in period of five years. The biggest advantage provided by such FDs is that it is easy to make the investment and there is no recurring yearly commitment for paying them.

Use this as a stop-gap option whenever you fall short of investing under the section 80 C limit.

5. Home Loan

Buy your dream house if you can afford to! The principal of home loan is eligible for income tax exemption under section 80 C.

The interest paid on your home loan is eligible for income tax exemption up to a cap of Rs 200,000 under section 24 B.

Section 80 D tax-savers

Medical insurance

Health is wealth and if you or your family members do not have medical insurance, plan to buy some this year.

Income tax exemptions for medical insurance up to Rs 25,000 (Rs 30,000 for senior citizens) is available for individuals and their dependents and an additional income tax exemption of Rs 25,000 (Rs 30,000 for senior citizens) is provided when medical insurance is taken for one's parents.

Investing in one's health is critical, and this year cover the health of your near and dear ones too!

NPS (National Pension Scheme) under Section 80 CCD

Investments under NPS can fetch you additional tax benefits for a limit of Rs 50,000. Given that NPS has intrinsic lock-in periods and very stringent partial withdrawal laws, it automatically contributes towards your retirement planning.

In order to protect the investor's interests, the cap on investing in equity is set at 50 per cent of the amount invested by the investor.

NPS is a good tax-saving investment which can reap above average returns.

Anil Rego is the founder and CEO of Right Horizons, an investment advisory and wealth management firm that focuses on providing financial solutions that are specific to customer needs.