A large number of tax-payers wait till March to make tax-saving investments. While this is not a wise habit, there are several investment options to even help late-starters save taxes.
It is that time of the year when salaried employees start getting notifications from the finance/account department to submit tax-saving investment proofs to reduce tax deduction. Unfortunately, a lot of people only start thinking about such investments when the returns filing date is just around the corner.
The lack of time often makes such late-starters select investment options that are not right for them. If you are a late-starter and yet to make tax-saving investments, here are some of the top choices you can consider.
- Purchase Life Insurance
Under Section 80C of the IT Act, you can claim deductions of up to Rs. 1.5 lakhs on the premiums you pay towards a life insurance policy. You can consider whole life insurance, term plan, money-back plan, or an endowment plan. If you aim to generate returns, you can also consider ULIP (Unit Linked Insurance Plan).
But note that while you can purchase life insurance online, policy underwriting often involves medical tests. Do keep this in mind if you only have a few days left for filing tax returns.
- Health Insurance for Tax-Saving
Health insurance policies are eligible for tax deduction under Section 80D of the IT Act. You can claim a tax deduction of up to Rs. 25,000 on the premiums paid towards a health insurance plan. The deduction limit for policyholders above 60 years is up to Rs. 50,000 in a year.
By purchasing a health insurance plan for yourself (below 60 years) and a parent (above 60 years), you can claim deductions of up to Rs. 75,000. But just like life insurance, health insurance policies involve medical tests.
- ELSS Mutual Funds for 80C Deduction
Equity Linked Savings Scheme is a type of equity-oriented mutual fund that is eligible for tax deduction under Section 80C of the IT Act. ELSS investments of up to Rs. 1.5 lakhs are eligible for tax deductions under Section 80C.
But as these are equity-oriented funds, they come with a considerable amount of risk too. Also, ELS funds have a lock-in period of 3 years.
- Saving Taxes with 5-Year Bank FDsÂ
One of the easiest ways to save taxes when only a few days are remaining for returns filing is 5-year bank FDs. They too are eligible for tax savings under Section 80C of the IT Act and can be used to deduct up to Rs. 1.5 lakhs from your taxable income for the financial year.
You can select any top bank and open an FD account online. Most banks also have an income tax calculator on their websites to help you easily calculate your tax liability for the financial year.
- Invest in PPF or NPS
You can also consider investing in PPF (Public Provident Fund) or NPS (National Pension Scheme) if you haven’t already. PPF is eligible for a tax deduction of up to Rs. 1.5 lakhs under Section 80C of the IT Act.
NPS is eligible for a tax deduction of up to 10% of the salary of the employee under Section 80CCD (1). There is also an additional deduction of up to Rs. 50,000 under Section 80CCD (1B) for NPS. But opening a new NPS or PPF account takes at least a few days.
Selecting the Right Tax-Saving Investment
It is common to make an investment mistake when you don’t have a lot of time to research and understand popular tax-saving options. But if you have already committed the mistake of starting late, these are some of the best tax-saving options that you can consider.
