A key component of financial planning is saving taxes as much as you can. The money that you save on your taxes can be allotted to different financial products of your choice. There are several financial products available in the market that allow you to save taxes and also offer attractive returns.
Rather than simply allocating your funds to a fixed deposit or recurring deposit that offers minimal returns, go for other investments that offer better returns. You must choose investments and other financial products that allow you to meet all your financial goals. Read further to know the popular investments and products to include in your tax saving plan.
Financial products that meet your investment goals along with saving taxes
- Unit Linked Insurance Plan (ULIP)
ULIP is a unique financial instrument that offers life insurance and investment opportunities in a single plan. It ensures that you fulfil your two major financial goals in a single plan. The life insurance component ensures that in your absence, your family has an income backup to take care of their financial needs. While the investment component works in creating wealth for the long haul. You can choose from debt funds or equity funds based on your risk appetite.
If you are risk averse, you can choose safe investments like debt funds or cash funds. If you are willing to take the risk, there are equity funds you can invest in. You can also invest in moderate funds that offer a balance between equity and debt. ULIP also offer premium redirection and fund-switching features which allow you to switch between funds of your choice anytime you want. It is a unique investment plan that allows you to switch funds and make the most of market fluctuations. Also, the premiums that you pay for ULIP are completely subjected to deductions as per Section 80C of the Income Tax Act. ULIP ensures that you meet your investment goals and save taxes alongside.
- Pension plan
A pension plan is another type of life insurance. However, the objective of the plan is much more than that of traditional life insurance. Pension plans are one of the must-have financial instruments when you are planning your retirement. The contribution that you make towards your pension plans are subjected to deductions as per Section 80C of the Income Tax Act. The maximum limit of the deduction as per Section 80C of the Income Tax Act cannot exceed Rs 1.5 lakhs. When your pension plan matures, the maturity amount that you receive is partly tax-free and partly treated as income and taxed at a marginal tax rate.
- PPF (Public Provident Fund)
PPF is a unique investment plan that offers you investment opportunities along with saving taxes. It is a long-term savings plus investment product. It is a low-risk investment which keeps your money safe. You can open a PPF account online or at your designated bank of either the public or private sector. You can also open the account at a post office. You can claim a deduction as per Section 80C of the Income Tax Act for any contributions that you make towards the PPF account.
- National Savings Certificate (NSC)
NSC is a savings bond scheme which is quite popular amongst small to mid-income investors. The certificate allows you to save and invest under Section 80C of the Income Tax Act. If you have a savings account with a bank or a post office, you can easily buy an NSC certificate online. You can also buy one at the post office or the bank in which your account is there. NSC also allows you to compound your money over the years, making it the perfect addition to your tax saving plan. You can also buy an NSC on behalf of your children, parents, or your spouse.
When you go through the different investment plans mentioned above, you will see that most of them are traditional forms of investment, except ULIP. It is one unique form of investment which helps in meeting two key goals under a single plan.