Tax deductions help you reduce your taxable income. You can invest up to Rs.2 lakh under section 80C and 80CCD(1B) of the I-T Act and save tax up to Rs.61,800. However, other deductions are also available under the I-T Act where you can save a higher amount of tax.
Equity Linked Savings Schemes (ELSS)
ELSS is one of the best tax-saving instruments which has a lock in period of just 3 years. Compared to another instrument it has the minimum holding time. Investors can avail tax benefits under section 80C of Income Tax Act 1961.
At times do invest in the dividend option which acts as a profit-booking mechanism and also gives you liquidity where dividends are tax-free in the hands of investors. It not only gives you tax benefits but also helps in capital appreciation which helps you to achieve your nearest goal.
Unit Linked Insurance Plan (ULIP’s)
If your life is not protected, then go for ULIP plans. It provides you with the dual benefit of investment and protection. Investment portion provides you with the market-linked returns while the other part provides you with the life insurance cover. You have the tax saving of Rs.1.5 lakh under this instrument. There is no liquidity for 5 years. Even the maturity benefits are tax-free under section 10(10D) with certain clauses. However, while investing money under this instrument, you have to make sure that you will remain invested at least for the next seven years.
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National Pension Schemes (NPS)
Deduction under the NPS scheme gives a tax benefit of Rs.50000 under section 80CCD (1B), which is over and above the limit of Rs 1.5 lakh declared under section 80C. NPS savings are mainly done for retirement purpose. You can do the minimum savings of Rs.500 per month or Rs.6000 a year.
Fixed Deposits (FD)
These are the safest option for investment. The investments under such instrument do not contain any market volatility risk. You get a fixed return after the maturity. Currently, banks are giving returns between 7% and 8%. A 5-year bank FDs are eligible for tax deductions up to a maximum amount of Rs.1.5 lakh. Depositors are insured for up to Rs.1lakh by Deposit Insurance and Credit Guarantee Corporation (DICGC).
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Public Provident Fund (PPF)
Contribution to PPF is eligible for deduction under section 80C of the Income Tax Act 1961. Interest is completely tax-free and the applicable rate of interest for 2016-17 is 8.1%. Unlike other instruments which are eligible for tax deduction under Section 80C, PPF enjoys an exempt- exempt- exempt (EEE) status, where withdrawal on maturity is also not taxed. A PPF account is not subject to attachment (seizure of the account by a Court order) under any order or decree of a court.