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Investment Options for Tax Saving in FY 2020-21

With tax regulations in place, it’s important to stay in compliance with them and fulfill all your taxation obligations. In Budget 2020, though the Finance Bill retains some of the tax exemptions on certain tax payments, almost 70 plus categories have been excluded from the list of exemptions.

We have to complete the tax savings process before the month of March when the financial year ends. It’s important to start the investment planning process early on so that we are able to take the full benefits that we are eligible for and not make expensive mistakes. We may not study all aspects of an investment opportunity, and we could end up losing money or remaining outside the purview of tax compliance.

There are several legal routes that you can adopt for tax saving. The main issue is that the regulations and rules are dynamic and can change from year to year. If you are not an experienced financial professional, it’s wise to consult a financial expert who specializes in tax planning. These professionals stay updated on the latest amendments, changes, and exemptions. With their help, it’s possible to maximize the benefits and take cognizance of all the current deductions and exemptions.

What is Tax Saving?

Best Investment Options for Tax Saving in FY 2020-21

The following tables show some of the available investment instruments under different Sections of the Income Tax Act

Investment under Section 80C

Investment under Section 80CAdvantagesRisksAnnual % ROIMaximum Deduction Allowed
NPS (National Pension Scheme)Ideal retirement nest-egg 40% of return is exempted from taxLong lock-in period Corpus not tax-free on maturity10.5%1,50,000 deductions under Section 80CCD1, 80CCD2, 80CCD1-B may be applicable
ULIPS (Unit Linked Savings Scheme)Savings Tax-free returns relatively short 5-year lock-in periodDirectly affected by market volatility
Lack of guaranteed returns Early withdrawal charges may impact ROI
9.20%1,50,000
VPF and PPF Voluntary Provident Fund and Public Provident FundSafety and Security Money flows in automatically into account8.5%1,50,000

Investment under Section 80D

Investment under Section 80DAdvantagesRisksAnnual % ROIMaximum Deduction Allowed
Based on health insurance premiums paidPremiums are eligible for tax benefitsHigh cost of premiumsDeductions up to Rs 25,000  per budgetary year for medical insurance premiums Limit for Senior and Super Senior citizens increased to Rs 50,000 so maximum benefit 1,00,000

Investment under Section 10(15)i

Investment under Section 10(15)iAdvantagesRisksAnnual % ROIMaximum Deduction Allowed
Post Office Savings Accounts
(several types available)
Tax free up to a certain limit Easily available throughout the country Guardians can open for minors Joint accounts possibleReliable and risk freeUsually on par with bank ROI (currently around 7.2% pa)

Some of the other tax savings avenues include Interest on Education Loan (under Section 80E), donations to specified charities and relief funds (Section 80G), donations to scientific research or rural development where the whole amount given is taken as a deduction (Section 80GGA), donation to a political party or electoral trust where full tax deduction can be claimed (Section 80GGC) etc.

How can I save tax via (bilateral) Mutual funds?

Equity-linked thrifts schemes or ELSS offer tax reduction under section 80C of the Income Tax Act, for investments up to Rs 1.5 lakh in a monetary year. You can choose investment options to invest through the SIP route or put in a lump sum expense.

How can I avoid spending excess TDS?

You require to submit your tax-saving proofs on time to your employer. The last date for such submissions varies, but most organizations would expect you to relinquish them by March 10, 2020. Nonetheless, employers start asking for them in January itself.