7 Tax Saving Options for FY 21-22

The term tax savings never fails to gain our attention. Who doesn’t love tax savings combined with investment? Here are the 7 ways to save tax and increase your savings through long term investments.

Below is a table showing different Individual tax slabs for FY22./p>

1. ELSS Mutual Funds: ELSS Funds mostly invest in equity stocks. The 2 most important features about ELSS funds are the lock-in period id 3 years, which is comparatively lesser than other tax saving schemes and a minimum equity exposure of 80%. In long term equity schemes as an asset, ELSS outperforms all the other asset classes. Also, it has higher growth potential in terms of capital appreciation when compared to other tax saving schemes. There is no upper cap for investment and the maximum tax deduction that can be availed is up to ₹1.5 lakhs under secton 80-C.
2. Public Provident Fund: PPF is a well-known classic and traditional tax saving instrument which is regulated by GOI (Government of India). It is one of the low risk schemes which invest in government instruments. The interest rate for PPF is set by the government and is reviewed every quarter. The current interest rate is set at 7.1% and is fully exempted from tax. The lower cap that you can invest is ₹500 and the maximum limit is up to ₹1.5 lakhs in one financial year. The entire deposit up to ₹1.5 lakhs along with the interest received upon maturity is exempted from tax.
3. National Savings Certificate: NSC is a fixed income scheme which comes with tax. Tax exemption is available on both principal and the reinvested amount up to a total of ₹ 1.5 lakhs. You can invest either for 5 years tenure or 10 years tenure. The interest accumulated till the final year is added to the certificate holder’s income and the same is taxed accordingly. There is no maximum limit of investment or puchase of NSCs. The current interest rate is 6.8%, compounded annually. However, the interest is payable only upon maturity.
4. Unit Linked Insurance Plans (ULIP): These plans are basically a combination of insurance and investment. A certain amount of the premium paid is invested in the capital market and the rest is used to provide insurance cover. They invest in equity and bonds. You have an option to switch between equity and bonds according to the market conditions and risk appetite. These products have a minimum lock-in period of 5 years. There is no limit on the maximum amount that can be invested in a financial year. Premium paid up to ₹1.5 lakhs one financial year is tax deductible. Though there is a Tax benefit to this product but only premium up to 10% of the sum assured is eligible for availing tax deduction in a financial year.
5. National Pension Scheme: As the name suggests, New Pension Scheme provides a lumpsum annuity and pension post retirement age. The retirement age as defined by the Government of India is 58 years of age. The scheme enables investors to invest a certain portion of their monthly income during the course of employment. After retirement, they can withdraw 60% of the amount tax free and the remaining 40% is to be compulsorily withdrawn as a pension. Unlike the provident fund you can withdraw upto 25% of your investments for certain expenses. These expenses include children’s higher education or weddings, treatment of critical illness for self, spouse, children or dependent parents, and construction or purchase of the first house,. Additional deduction of ₹50,000 [under Section 80CCD (1B)] over and above ₹1.5 lakhs can be availed in a financial year.
6. Life Insurance: LI is one of the simplest tax-saving schemes. The premium paid up to ₹1.5 lakhs in one financial year towards LI is tax exempted. Different types of life insurance policies like Term Plans, Endowment Policy, ULIP, Money Back Policy, Whole Life Policy, Annuity Pension plan etc. are offered by the life insurance companies.
7. Health Insurance: For senior citizens, Section 80D of the income tax act allows deduction of premium paid for health insurance up to ₹50,000. Similarly, deduction up to ₹25,000 is for insurance of self spouse and dependent children. Additional to this ₹ 25,000, a deduction of ₹50,000 is available for covering parents.