If you’re an Indian resident and earning and saving money then it’s important that you know how to save tax in India and at the same time earn returns on your investment. The best way to save tax is to invest through Section 80C of the Income Tax Act.
In case you are wondering how to save tax in India, are looking for ways to invest without leaving too much of your hard-earned money with the government, then you’ve come to the right place.
One of the most important things to do to save tax is to invest in tax saving plans. Saving Plans are advantageous since they are completely tax-free till maturity. The rate of return might not be that high but the best part is that it helps you save tax.
The highest amount that you can withdraw is determined by the period of investment, which is usually 3-5 years. This enables the investor to extract capital gains tax-free.
What Is a Saving Plan?
Savings plans help individuals plan for the future by investing systematically and with discipline. The various features of the savings plans make it possible for individuals to make investments that fit their needs and risk tolerance.
The savings plan has the advantages of accumulating your capital along with insurance coverage. The insurance policy will pay out a death benefit to your family if you die during the time the savings plan is active.
You can use a savings plan to save money from your salary. Savings plans are offered by the government and private financial institutions, which makes them an extremely safe and reliable way to gain a good amount of interest.
How Saving Plans Help You Save Taxes?
Tax saving plans are a form of life insurance and, as such, offer the same tax benefits that life insurance offers: you can claim a deduction of up to Rs 1.5 lakh, per year, from your taxable income, for payments towards your policy coverage as per the section 80C of the Income Tax Act of India.
The maturity amount of your savings plan is also excluded from tax, provided certain conditions are met under section 10(10D) of the Income Tax Act. This makes saving plans ideal for saving money on taxes.
What Are the Other Benefits That Saving Plans Yield?
1. Coverage and Payouts
Saving plans offer much-needed financial coverage to your loved ones in the event of your untimely demise. They not only make pay-outs to your beneficiaries, but this added benefit of coverage helps financially protect your family in future.
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2. Inculcates Savings Habit
While savings plans can be touted as a way to build up your assets, the real value comes from the habits they help develop. Saving regularly teaches you to live within your means, which can turn out to be very beneficial in the long run.
3. Higher Flexibility
The best tax saving plans for you take into account your unique circumstances and provide a wide variety of flexible features to meet your changing needs. They offer investment options and funds and other investment criteria and options in terms and pay-outs.
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4. Goal-Oriented
Some saving plans are set up specifically to help you save up for a particular goal. For example, if you have kids, you might have a saving plan that’s designed to help you pay for their education, which makes them ideal for fulfilling a particular goal.
5. Long-Term Financial Security
For your financial security, your medical security, your future retirement security, you just need to put money aside in an interest-bearing account. So, invest in a savings plan today to make sure you’ll be able to make ends meet in the future.
6. Liquidity of Funds
Regardless of the type or duration of your life insurance policy, you can withdraw funds from your account after the first five years (a policy’s “lock-in period”) if you face an emergency, which signifies the high liquidity in savings plans.
7. Additional Riders
Saving plans offer you the chance to save regularly in a tax-efficient manner and to get returns that are linked or not linked to equities. Potential riders include critical illness and disability covers, and accidental death benefits that can be used to extend your policy’s coverage.
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8. Personalized Tenure
Savings plans are generally tailored to suit the risk profile of the policyholder and are designed for people in all age brackets. Millennials in their 20s and 30s will probably be willing to take higher risks for lucrative returns—and therefore would invest in equity.
Choosing The Right Savings Plan as Per Your Requirements
To choose the right saving plan for your needs and objectives, you must first set your investment goals and plans. Figure out your short-term and long-term investment goals and how much you want to invest in a savings plan to help you meet those aspirations.
You’ll also need to figure out how much risk you’re comfortable with and what your goals are.
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Before buying anything, you should figure out what you want and how to get it, then figure out how much risk you’re willing to take to achieve it.
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Afterwards, research the various saving plans available to you—their flexibility, unique features, terms, conditions, interest rates, etc. Next, choose the best plans accordingly and be rewarded with financial security.
A good plan can get you started on the road to achieving your goals. It is never too late to start saving, which is why you must consider investing in a savings plan as early as possible to attain financial security.
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Final Words
A tax saving plan can be a great way to start saving for your child’s education. There are multiple options available, and you should explore all of them before deciding on a specific one. This article will provide you with an overview of things you should know about a savings plan as well as the benefits associated with them.
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