In recent times, due to rising cost of living, many people have started focusing on growing their wealth. Wealth creation is a concept that focuses on investing your wealth in different instruments that help you get considerable returns over time. Having an investment plan helps you in achieving your target of wealth creation.
However, as a first-time investor, there are chances that you may not know which instruments to select for investment. This may be the case especially if you do not know which instrument could get taxed. Keep reading if you want to know about different financial instruments that allow you enjoy the benefits of investment along with tax relief.
Types of tax saving instruments
Apart from allowing you considerable returns, the following instruments could also be an effective part of your tax saving plan:
- Equity-linked Saving Scheme (ELSS)
This is a scheme that gives you a more consistent way of investing in mutual funds. When you invest in ELSS, your money is invested in equity funds, which provide good returns. However, do keep in mind that equity market is volatile in nature and fluctuations could impact your returns. Under Section 80C of the Income Tax Act, ELSS plans are eligible for tax deduction up to Rs.1.5 lakhs.
- National Pension Scheme (NPS)
This scheme allows you to create savings with your retirement in mind. The income that you earn from this can be used as pension after you retire. As the money invested in the scheme comes directly from your income, you get tax deduction of up to 10% of salary, i.e., basic pay plus dearness allowance on the contributions made to this scheme. This deduction comes within the deduction limit of Rs. 1.5 lakhs under Section 80CCE of the Income Tax Act.
- Life Insurance Policy
A life insurance policy ensures that your family is well compensated financially if they were to face a financial crisis due to your absence during the policy term. When you purchase this policy, you are eligible for tax deduction on two aspects of the policy. The first is the premium, which is eligible for tax deduction for a limit of up to Rs.1.5 lakhs under Section 80C of the Income Tax Act. The second is the benefit received, which is eligible for tax deduction under Section 10(10D).
- Unit Linked Insurance Plan (ULIP)
ULIPs are a type of life insurance policy that provide with the dual benefit of investment and insurance. This policy is for those who look for an investment option alongside life insurance. Under the old tax regime, the premium payment limit eligible for tax deduction was up to Rs.1.5 lakhs under Section 80C. This has been increased to Rs.2.5 lakhs under the new tax regime. The maturity benefits and death benefits are also eligible for tax deduction under Section 10(10D) of the Income Tax Act.
- Public Provident Fund (PPF)
PPFs are considered to be one of the safest investment options that provide nominal returns for many people. This fund is preferred by salaried individuals who are looking to invest minimal amounts for a longer duration. Under Section 80C of the Income Tax Act, investments made up to Rs. 1.5 lakhs are eligible for tax deduction.
- National Saving Certificates (NSC)
This is a type of fixed deposit scheme that you can avail at a post office. The plan leans more towards a traditional design which is relatively low risk as well as low yield. This may be preferred by people who have a lower risk appetite. Investments made up to Rs.1.5 lakhs are eligible for tax deduction under Section 80C of the Income Tax Act.
If you want to increase your wealth gradually and want to avoid your gains getting taxed, you can consider selecting from the list of financial instruments mentioned above. You can consult your insurance agent to discuss more about life insurance.