What is your primary aim for investing funds? Well, when you ask these questions, every person will have a different response. Some are building a retirement fund while others are keeping funds for their child's education. There may be a few who are just trying to create wealth. But no matter what the active aim, tax saving is the passive aim that everyone looks to attain.
But do you know that when it comes to tax savings, there are certain sections and limitations that you must keep in mind? This is where you need to focus on the best tax-saving investments. These plans allow you to earn income on your investments while helping you save as well.
So, let us explore the different tax savings plans that you can go for.
Old vs New Tax Regime: How Clients Decide
Before suggesting any tax saving investment plans, it is important to understand their needs. But at the same time, it is essential to help clients understand the difference between the old and new tax regimes. Both aim to reduce tax liability, but the approach and benefits differ.
Why Use Old Tax Regime
- Get the deductions under multiple sections like 80C, 80D, and 24(b).
- Get the deductions under multiple sections like 80C, 80D, and 24(b).
- Encourages long-term savings through structured investment habits.
When is New Tax Regime Better
- Provides reduced tax rates with limited exemptions.
- Ideal for clients who prefer easy filing and fewer investment commitments.
- Suitable for young professionals or those without major deductions.
Decision Point for Partners
When you are finalising which one to consider, you must look into all the aspects. So, if the deduction is more than ₹2 lakh, you should go for the old regime. You will end up getting higher deductions and saving on taxes.
Section 80C Investments: ELSS, PPF, EPF, Life Insurance, Home Principal
What are the best tax saving investments? Well, this will be based on your ultimate need and the income you earn. But there are certain sections that you should definitely focus on when planning your investment.
This is where you need to understand Section 80C of the tax planning. This is where you can claim deductions of up to ₹1.5 lakh annually. Some of the great options that you can go for are as follows:
1. Equity Linked Savings Scheme (ELSS)
Mutual fund experts will guide you through ELSS mostly. ELSS funds invest in equities. These are the mutual funds which come with a 3-year lock-in period. They are known for their high growth potential, which makes them suitable for investors looking to generate wealth. These funds are market-linked in nature, so they carry a certain amount of risk as well.
2. Public Provident Fund (PPF)
These are the government-backed schemes. These are long-term savings plans with a 15-year lock-in. They are known for providing stable returns and stability. These funds allow you to enjoy tax-free returns, which is unique. It is best for clients prioritising safety and consistent, compounding growth.
3. Employees’ Provident Fund (EPF)
EPF builds a strong retirement corpus. These are the funds which are created with the help of consistent contributions from both the employer and the employee. These are tax-free in nature. The maturity benefit that these funds offer makes them perfect for salaried individuals.
4. Life Insurance Premiums
If you are paying a premium for a life insurance policy for yourself, spouse, kids, or parents, then you can claim a deduction on it. The policy that helps you to safeguard your family also allows you to enjoy tax benefits as well. This also protects the future of your family.
5. Home Loan Principal Repayment
When you secure a home loan, there is an interest rate and the principal amount. So, when you repay the principal amount in your EMIs, the principal repayment portion offers you a tax benefit. It encourages home ownership while helping clients reduce their taxable income effectively.
Health and Retirement Deductions: Section 80D and NPS 80CCD(1B)
80C is just one of the many sections which can help you with tax benefits. These include the tax deductions for health insurance and retirement planning. The sections that you must focus on are as follows:
1. Section 80D – Health Insurance Premiums
When you pay the premium for medical insurance for yourself, spouse, kids, or parents, this qualifies for the tax benefit. You can claim the deductions up to ₹25,000, and ₹50,000 for senior citizens. Planning and paying for medical insurance prepares you for the uncertainties and helps you save as well.
2. Section 80CCD(1B) – National Pension System (NPS)
Everyone needs to secure their retirement. It is valid for those who are self-employed as well as those who are salaried. This is where you need the NPS. If you are investing in this, then you can claim an extra deduction of ₹50,000 for the contributions. It helps you build a retirement corpus with proper planning and safeguards your future as well.
Home Loan and Savings Interest: Section 24(b), 80TTA, 80TTB
Most individuals focus on 80C and 80D when planning their taxes. But this is also one of the most crucial aspects of tax planning that you must not forget. Where tax savings investment plans help you to earn and save both at the same time, this section helps you plan and invest better.
These deductions offer relief on interest earned or paid. Some of the key aspects of the same that you should remember are as follows:
1. Section 24(b) – Home Loan Interest
If you have a home loan, then you can claim up to ₹2 lakh annually on interest paid. But it is important to note that this is applicable for a self-occupied property. It encourages home ownership while providing significant tax savings on housing loans.
2. Section 80TTA – Savings Account Interest
Having a savings account is normal. But the interest that you earn on your savings helps you to claim tax benefits as well. So, under this, you can claim up to ₹10,000 deduction on interest earned from savings accounts. This rewards you not just for your savings but also for your prompt planning.
3. Section 80TTB – Senior Citizen Savings Interest
Senior citizens can claim deductions up to ₹50,000 on interest earned from deposits. This allows you not just to earn a steady income but also ensures that you have a well-planned tax savings scheme.
Turn Tax Savings into Long-Term Wealth with Smart Planning
Tax saving is not just about reducing liabilities. But this is all about planning better, which can help you save more and earn more. This is all about making smart choices that can help you with better earnings.
Hence, it is important to note that the best tax saving investments vary based on their needs. So, knowing what they need and when can help you greatly. And if you are one who can analyse this, then this is time to start your journey.
Become a financial advisor with Choice Connect and start guiding clients today. Assist them in making better investment choices and guide them through tax planning.
FAQs
1. What are the best tax saving investment plans under Section 80C?
ELSS, PPF, EPF, life insurance premiums, and home loan principal repayments are the options that can help you with tax deductions. You can gain benefits upto ₹1.5 lakh annually under Section 80C.
2. Can I claim both 80C and 80D deductions together?
Yes. Clients can claim health insurance deductions under Section 80D in addition to investments made under Section 80C for wider tax benefits.
3. Which regime offers better tax savings — old or new?
If you are looking for multiple deductions, then you would need to apply for the old tax regime. But if you are looking for minimal exceptions, go for the new regime. Comparing both ensures optimal savings.
4. How much tax benefit does NPS offer under Section 80CCD(1B)
Clients can claim an additional ₹50,000 deduction beyond the 80C limits. This makes the NPS a valuable tool for retirement-focused investors.
5. Are savings account interests taxable for everyone?
Interest up to ₹10,000 from savings accounts is exempt under Section 80TTA. But if you are a senior citizen, you can enjoy up to ₹50,000 under Section 80TTB.
