Financial planning is one of the most critical aspects of every earning individual’s life, and it is crucial to start at an early age so you can reap benefits in the later years. Finding the right balance between investing to create wealth and planning your tax saving options is the key to being financially secure.
While tax saving is an essential aspect of financial planning, it is important to also look towards instruments that help you achieve your other goals. Looking for ideal tax saving options that can also help you achieve your wealth creation goals, in the long run, would be beneficial for your portfolio.
You can be future-ready and prepared to enjoy your retirement years once you find the ideal tax saving options and create a portfolio mix that can help with all your future expenses.
If you are thinking of following the old tax regime, then there are a couple of investment schemes and instruments that can not only help you save tax every year but also create wealth for your short-term and long-term goals.
Here are some of the best tax saving options that you can turn to in 2021:
- Public Provident Fund (PPF)
PPF is regarded as a popular tax saving schemes among taxpaying individuals as it falls under the EEE category, which means that not only do you save tax on investing with PPF but can also enjoy tax-free interest and maturity amounts from your PPF.
Such tax saving options are deductible under section 80C and comes under the lock-in period of 15 years. Post the lock-in period, investors can either continue to invest for another 5 years or withdraw their proceedings.
- Equity-Linked Savings Scheme (ELSS)
These types of tax saving options usually invest a significant chunk of your money in equity and come with a lock-in period of 3 years. ELSS mutual funds invest at least 60% in equity or other equity-linked schemes, and while there is an inherent level of risk that comes with this investment, it is just as rewarding in terms of returns.
You can choose to make a lump sum investment or go for a systematic investment plan (SIP) to invest in ELSS schemes, as that can help you form a disciplined investment habit. ELSS funds offer you the dual benefit of tax saving investments with capital appreciation, making it one of the most sought-after tax saving instruments among taxpaying citizens.
- Term Insurance Plans
A term insurance plan is a beneficial policy that mitigates financial risks for a family by offering a life cover to the policyholder or the life insured according to the plan. The premiums that a policyholder pays towards the term insurance policy or towards a term policy of a dependent family member are exempt from tax under various sections of the Income Tax Act.
By purchasing a term insurance plan, not only can you offer financial security to your beneficiaries i.e., your family, in your absence but also create a diversified investment portfolio that helps you save on tax – making it one of the best tax saving options.
- Unit-Linked Insurance Plan (ULIP)
If you’ve ever wondered ‘what is ULIP?’ – it is a multi-faceted insurance plan that combines life insurance and investment option for the investor. You pay regular premiums towards this plan, which can be claimed towards tax deduction, and part of your investment is offered to you as life insurance coverage.
Such plans can help you create wealth in the long-term for goals like buying a new home or children’s education and marriage, and retirement, to name a few. For investors who seek the best of both the insurance and investment world, ULIP schemes could be an ideal choice.
- Health Insurance Plans
Health insurance is also a valuable instrument as it helps with your hospitalization and medical costs and mitigates rising inflation. You can buy an individual health policy or opt for a family policy and claim tax benefits on the premiums you pay towards your policy under section 80D.
Further, under section 80DD of the Income Tax Act of 1961, you can claim a tax deduction against medical expenses of disabled dependents like parents, siblings, children, or even your spouse. As a taxpayer, remember to reduce your liability if you are looking after the medical expenses for disabled dependents in your family. This is another tax saving instrument that can be availed of as per the old tax regime in India.
No taxpayer would like to miss out on tax saving investments that could have helped them plan their finances and invest better. To make tax calculation easy, you can simply use an income tax calculator to know your tax payable for the current year before finalizing tax saving options.
This way, you will know precisely how to split your investment and diversify your portfolio at ease. Remember to make room in your financial portfolio and add these diversified tax saving options to claim the best benefits in 2021.