Most taxpayers have already made their investments for this financial year, that’s going to end in a week. Quite a few have already set plans in place for the next one. On the off chance that you don’t find yourself in either boat, you don’t need to drown in the dependence of not saving any tax this financial year. There’s a lifejacket: you STILL have time to invest in some tax-saving investment options that can help save taxes for FY 2022-23.
There’s no blame game here, most taxpayers only get serious about saving taxes by March every year. In case you want to put your money in the right schemes to get good returns and enjoy tax benefits, here are some of the most popular investment options and the tax benefits they offer if you invest in them before 31stMarch.
Best Investment Options Before 31st March
1. Tax-Saving Fixed Deposit
A tax-saving fixed deposit at a bank or post office is the most popular investment option to save income tax of up to ₹ 1.5 Lakh for the current financial year. The interest rate varies between banks, and the interest received is taxable. Since these fixed deposits have a lock-in period of five years, you cannot withdraw them before the completion of that period.
2. Life Insurance
Life insurance provides tax-free returns, making it a popular investment option among taxpayers. However, the latest Union Budget has proposed taxation on the life insurance maturity proceeds if the annual premium exceeds ₹ 5 Lakh. If the proposal gets approval, the policies bought after 1st April 2023 will become taxable. So, purchasing a life insurance policy before 31st March will help get the maximum tax advantage.
3. Equity-linked Savings Scheme (ELSS)
These funds are market-linked that allow investment in the equity market. Under Section 80C, you can claim a tax deduction of up to ₹ 1.5 Lakh, quite a lucrative investment option to save taxes. Remember, these schemes have a lock-in period of three years, before which you cannot withdraw your money if needed. The minimum investment amount varies between mutual fund houses, but they have no maximum limit for investment. The capital gains and returns earned are taxable if they are more than ₹ 1 Lakh in a financial year.
4. Public Provident Fund (PPF)
PPF is one of the most beneficial tax-saving schemes due to its EEE status. That means the investment, the interest earned on it, and the maturity amount: everything is exempted from tax. Moreover, these are debt investment types, making them less risky than ELSS mutual funds. The government announces PPF interest every quarter, which was 7.1% for the January-March 2023 quarter. The investment has a lock-in period of 15 years with partial withdrawal and loan facilities. You can open a PPF account at a bank or post office with a minimum ₹ 500 and a maximum ₹ 1.5 Lakh of the investment amount.
5. Sukanya Samriddhi Yojana (SSY)
If you have a girl child below ten years, take advantage of this savings scheme to save tax on it. While investors must deposit money in it for 15 years from opening the account in a bank or post office, it matures after 21 years. You can deposit a minimum ₹ 250 and a maximum ₹ 1.5 Lakh in a Sukanya Samriddhi account in a financial year. Like PPF, the SSY account also has a EEE tax status, making everything tax-free for the investor.
6. Debt Funds
Considering the consistent rate hikes by the RBI, turning the interest rate cycle is on the horizon. Debt funds will surely deliver the best returns if the rates remain static or go down. Indexation benefit is another reason to buy debt funds before 31st March and hold it for at least three years. Extending the holding period to the fourth year brings additional benefits of one more year. If you already have debt funds, do not sell them now. Hold them till 1st April to get the indexation benefit of the next year.
7. National Pension System (NPS)
NPS investments are eligible for tax deductions under Section 80CCD (1). These market-linked schemes offer pensions to investors from their retirement age. You can claim 10% of the salary as a deduction not exceeding ₹ 1.5 Lakh. Hence, if you earn a basic wage of ₹ 10 Lakh, you can claim a deduction of up to ₹ 1 Lakh under this scheme. Explore other tax-saving investment options before 31st March to fully utilise the tax benefit of ₹ 1.5 Lakh.
The lock-in period is the investor’s age of 60 years. For instance, if you start investing in NPS at 25 years, you will have a lock-in period of 35 years until you turn 60. The scheme offers partial withdrawals under specific circumstances. Upon maturity, you can withdraw a maximum of 60% of the amount as a lump sum, which is tax-exempted. Use the remaining 40% to buy an annuity plan, which is taxable. Investors must make a minimum contribution of ₹ 1,000 every year to keep the NPS account active.
8. National Savings Certificate (NSC)
Visit your nearest post office branch and invest in NSC to save income tax. The government announces the NSC interest rate every quarter, which remains fixed until maturity after investment. It has a lock-in period of five years, before which you cannot withdraw the money if needed.
9. Unit-Linked Insurance Plans (ULIP)
ULIP is a market-linked insurance product that offers life insurance coverage apart from equity investment benefits. Invest in ULIP before 31st March for a lock-in period of five years and withdraw money at maturity. The investment amount depends on several factors, including the investor’s age, policy term, sum insured, etc. The maturity proceeds are taxable if the premium payments exceed ₹ 2.5 Lakh in a financial year.
Choosing the Best Investment Option Before 31st March
Your taxes need to be saved, but that doesn’t mean you save them without planning your future finances first. Please understand the best investment option to save your taxes should depend on your risk appetite and long-term investment goals. Consider each investment option’s pros and cons and choose the one with maximum returns and tax benefits. Please do your research (quickly!) and go for options that ensure full tax benefits available under different sections. Investing in them before 31st March will help you save more and keep the investment safe and secure.
Save Tax Today but Make Sure to Earn Tomorrow
Investing in the right options before 31st March is an excellent way to save taxes. While multiple investment options are available, making the right choice will make all the difference for tax benefits. Your investments should not only save your tax today but also grow your wealth across the many tomorrows you and your finances will see. Happy investments and tax savings to you!