Tax saving is an essential part of proper financial planning during investment since it allows you to get back a portion of your income that would not have been available otherwise. Since 2020, Indian citizens have followed one of two tax regimes having different tax slabs and saving options. These are called the old regime and the new regime, respectively. The amount of tax you pay and save depends on your regime. To determine these amounts, you can use the old tax regime or the new tax regime calculator.
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A wise taxpayer will prepare a complete strategy to save taxes while planning their investment. Therefore, let us take a look at all the investment options that will allow you to save taxes in the financial year 2022-2023.
Top tax saving investment options for FY22-23
The best investment options with the added advantage of saving taxes that you can go for are as follows:
- Fixed Deposit (FD)
A fixed deposit is a very popular investment instrument that doubles as a tax-saving tool. Tax saver fixed deposits can bring tax deductions under Section 80C of the Income Tax Act 1961. You can claim a maximum of 1.5 lakhs per financial year if you invest in a tax saver fixed deposit. These FDs have a 5 year lock-in period. Interest earned usually ranges between 5.5% and 7.5% per year and is taxable.
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- Public Provident Fund (PPF)
The Public Provident Scheme, popularly called PPF, is another well-known tax-saving investment. It is a long-term savings cum investment instrument. First, you have to create a PPF account in any post office or specified public and private sector bank branches. Then, you can deposit small amounts each month in these accounts and earn interest on them at a guaranteed rate.
- Unit Linked Insurance Plan (ULIP)
ULIPS are one of the most versatile investment instruments since they allow you to invest in debt, equity, or both, according to your requirement and risk appetite. Moreover, you can switch between funds according to your financial goals. In addition, if you invest in ULIPs, you can save taxes under Section 80C and Section 10(10D) of the Income Tax Act, 1961.
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- Senior Citizen Savings Scheme (SCSS)
SCSS is the instrument of choice for senior citizens or individuals over 60 years of age. It is a government-sponsored investment scheme that secures a steady income source after they retire. It usually offers greater returns than other investment schemes under the same parameters. In addition, you can claim a tax deduction of up to 1.5 lakhs on the investment amount under Section 80C of the Income Tax Act, 1961.
- National Savings Certificate (NSC)
The National Savings Certificate is a savings cum investment scheme for small and medium-income investors. It is available for anyone with a savings account in a bank or post office, and even minors can invest in this scheme jointly with an adult. NSC offers tax savings under Section 80C of the Income Tax Act, 1961.
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- Life insurance
Life insurance is not strictly an investment scheme. Instead, it offers financial protection to the family of policyholders in case of their unfortunate demise. There are different types of life insurance policies, including term life plans, ULIPs, endowment plans, and money-back plans. The premiums paid on life insurance are subject to tax deductions under Section 80C of the Income Tax Act, 1961. Moreover, in case of the policyholder’s unfortunate demise or maturity of a term life plan, the proceeds are tax-exempt under Section 10 (10D) of the same act.
- Health insurance (k1)
Also called Mediclaim, health insurance plans offer financial protection in case of sudden hospitalization, either planned or in an emergency. Some types of health insurance policies also cover pre- and post-hospitalization expenses. You can claim deductions on health insurance under Section 80D of the Income Tax Act, 1961. The maturity amount disbursed in case of critical illness is tax-exempt.
Several of the above tax benefits do not apply to the new tax regime. However, if you pay taxes under the old regime, you can make substantial savings by investing in the instruments mentioned above in the financial year 2022-2023.
