The Interim Budget 2020 offers taxpayers the option to choose between the existing tax regime and the new tax regime. The new tax regime offers slashed income tax rates and narrower tax slabs to investors. However, one would have to forgo certain 70 tax deductions and exemptions. On the other hand, if you continue with the old tax regime, although you’d be paying slightly higher taxes, you would be able to opt for certain tax deductions and exemptions.
Are you planning to opt for the old tax regime? Are you still unsure about the tax-saving investments that will help you reduce your tax outgo? Worry not. We have drafted four popular online tax-saving investments that can save your time. Read on to know about these investment options.
Equity Linked Savings Scheme (ELSS)
ELSS are tax-saving mutual funds that invest a majority of their portfolio in equity and equity-related investments. Like any other Section 80C investments, these mutual funds are eligible for a tax deduction of up to Rs 1.5 lac under Section 80C of the Income Tax Act, 1961. ELSS funds have a lock-in tenure of just three years – the shortest lock-in tenure against any other Section 80C investments. Undoubtedly, ELSS mutual funds offer investors dual benefits of tax-saving and wealth creation attributes.
Tax-saving fixed deposits (FD)
These are one of the most traditional and safest tax-saving investments known to humanity. These investment vehicles allow individuals and HUFs (Hindu Undivided Family) to park their cash and fetch a predetermined fixed interest rate. These interest rates are usually unaffected by volatility and fluctuations in the market. These investment options have a lock-in period of five years. Note that these investment options do not allow premature withdrawals before the completion of the lock-in duration. These investment options are a boon to risk-averse investors.
Unit Linked Investment Plan (ULIP)
These tax-saving investments act as a two-in-one investment product by offering two diverse benefits to investors – investment and insurance. A part of the corpus is used towards securing the investor’s life by investing in life insurance policies. In contrast, the remaining part is used to invest in different investment options. An investor can invest in equity or debt funds based on the risk profile of the investor. The lock-in period on these tax-saving investments is five years.
Public Provident Fund (PPF)
PPF is a long-term investment option that the Government of India backs. As a result, they offer stable returns to investors. These investment options are typically used by investors looking to create a financial cushion for their post-retirement needs. Though these investment options have a lock-in duration of fifteen years, they try to make it up with their EEE tax status. This typically means that the principal amount invested, interest accrued, and maturity amount are exempt from paying tax.
Note that all Section 80C investments provide a cumulative tax deduction of up to Rs 1.5 lac p.a. As an investor, you can save up to Rs 46,800 by investing in these tax-saving investments, provided that you belong to the highest tax bracket. Happy investing! Additionally, one must not invest in these tax-saving investments with the sole purpose of saving tax. They must align with your portfolio and help you reach your other financial goals as well. Your tax-saving investments, just like any other type of investment, must align with your financial goals, risk profile, and investment horizon.