With the beginning of the Financial Year 2022-23, the tax clock starts ticking afresh. So, you should also start your tax calculation afresh taking into consideration the changes in tax rules and enhancement prospects in your income.
After calculating the estimated annual income, you should consider all the available avenues to save taxes, so that the tax outgo may be minimised.
As tax-saving investments are long-term in nature and come with certain lock-in periods, you should pick up the instruments carefully, so that, apart from saving tax, such instruments should also meet your long-term financial goals.
“Tax planning is an important practice to adopt once our income becomes taxable. And with adequate knowledge about the tax planning structure, we can prevent ourselves from paying unnecessary taxes and instead make suitable investments to save more and eventually achieve all our aspirational goals. There are numerous financial instruments available for this purpose,” said Vikas Singhania, CEO, TradeSmart.
Singhania lists the following tax-saving investment options that one may opt for as per his/her requirements:
PPF and FDs
Public Provident Fund (PPF) and tax-saving FDs allow tax deduction of up to Rs 1.50 lakh for the amount invested during the financial year.
National Pension System (NPS) is a retirement planning scheme to generate monthly income during the retirement period. Both government and private sector employees can leverage it.
The Senior Citizens Saving Scheme (SCSS) was designed to provide a regular income to people over 60 years of age, allowing tax exemption of up to Rs 1.50 lakh.
Life Insurance also provides tax benefits of up to Rs 1.50 lakh, while ULIP provides market-linked returns along with insurance and tax deduction.
Health Insurance enables you to save tax of up to Rs 25,000 on the regular premium paid for self, spouse and children, while it can extend to Rs 50,000 if both parents are also covered.
Equity Linked Savings Scheme (ELSS) is another good option that allows you to invest in the stock market and save tax simultaneously with the lowest lock-in period of 3 years.
There are also other investment options that offer the same level of tax relief, including NSC (minimum deposit Rs 100, investment tenure 5 years), Sukanya Samriddhi Yojana (to secure the financial future of the girl child), and home loan.