Different Financial Instruments to Save Tax

1. What are the different financial instruments to help save tax?

2. Introduction Saving tax is not a need; it’s a necessity. Do you want to increase your annual expenditure by letting your hard-earned money get axed by taxes? No, right? Hence, investors should not wait until the last moment to plan their taxes and keep it on top priority. To evade tax deductions, investors need to inculcate the discipline of saving regularly and convert these savings into tax-exempt investments. Yes, under Section 80C of the Indian Income Tax Act of 196, there are numerous traditional and non-traditional tax saving schemes available which investors, depending on their goal and risk appetite, can choose to invest to save taxes.

3. Financial Instruments for tax saving Equity Linked Saving Scheme (ELSS)- Equity Linked Saving Scheme or ELSS is the only mutual fund scheme that has tax benefits. This open-ended mutual fund scheme comes with a predetermined lock-in period of three years. More than 80% of the ELSS scheme assets are invested in equities. ELSS is the only mutual fund scheme that comes under Section 80C of the Indian Income Tax Act of 1961. If you want to save tax and at the same time, potentially fetch higher returns through equity investments, you can consider investing in ELSS. Senior Citizens Savings Scheme (SCSS)– SCSS tax saving scheme for senior citizens is rolled out under the purview of the government of India. This government-backed savings instrument is for people who are above 60 years of age. Senior citizens can invest up to Rs. 15 lakhs in this scheme and the rate of interest is finalized by the Ministry of Finance and revised annually. Senior Citizens Savings Scheme comes with a minimum lock-in period of five years. The scheme offers the quarterly interest returns which investors can make reap benefits from. Under Section 80C, SCSS investments are eligible for tax deductions.

4. Financial Instruments for tax saving National Pension Scheme (NPS)- National Pension Scheme or NPS is a government-backed scheme rolled out under the purview of the Pension Fund Regulatory and Development Authority (PFRDA) and the Central Government of India. NPS is available for private, public as well as unorganized sector employees. The scheme requires investors to invest during their employment phase. Post-retirement, investors can withdraw a certain amount of their corpus while the remaining amount is received in the form of a monthly pension. Unit Linked Investment Plan (ULIP)- Unit Linked Investment Plan or ULIP is a tax saving instrument which comes under Section 80C of the Indian Income Tax Act of 1961. ULIP is a combination of investment and insurance and is eligible for tax exemption. Returns from ULIP investments aren’t guaranteed. Gains from ULIP are tax-free.

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