Your deadline to make tax-saving investments for the financial year 2018-19 is over. If you have missed out on making some beneficial tax-saving investments during the previous financial year, you must pay adequate attention to tax planning for the financial year 2019-20. Tax planning should be done at the start of the financial year and it should be implemented throughout the year. By postponing tax- saving investments, you are making bad financial decisions. Hence, you must start looking for attractive tax-saving options at the earliest.
Save tax under Section 80C
Section 80C of the Income Tax Act, 1961 offers a huge tax benefit with a deduction limit of INR 1.5 lakh. In order to avail of this deduction, you can invest in different tax-saving options like Public Provident Fund [PPF], Employee Provident Fund, National Pension Scheme, Equity-Linked Savings Scheme [ELSS], life insurance, and expenses on home loan principal and children’s tuition fees. If you want to know how to save tax, you need to be aware of these tax-saving options.
Once you are aware of the limit and the investment options available to you, you can recall each eligible expense and investment, which you have made in the past. If the investment is eligible for the claim, you will be able to arrive at the deduction benefit, which is yet to be exhausted. Alternatively, you can plan all the investments keeping Section 80C in mind. Distribute the investments into different products to enhance your portfolio.
Factors involved in tax-saving investments
Listed below are a few important factors that you need to consider when you look at tax-saving investment options.
- Liquidity
As an important criterion for many taxpayers, liquidity plays a crucial role in your investment decision. You need to ensure that you do not choose an investment option simply to avail of the benefit of tax deduction. You need to understand the role of every investment in your financial plan and consider the liquidity it offers.
- Risk
One of the most important tax-saving tips is to make an investment, which is in alignment with your risk appetite. Investments in instruments such as Unit-Linked Insurance Plans [ULIPs] and ELSS are considered riskier as compared to PPF or National Savings Certificate [NSC]. Hence, check your risk appetite before making any investment decisions.
- Returns
Do not make an investment decision thinking how much tax can be saved under 80C. Instead, try to look for investment options that generate maximum returns for you. PPF, NSC, and tax-saving FDs will generate minimum returns at low risk. The returns will be fixed. However, options like ULIP or ELSS will give you better returns but the risk associated with the same will be slightly higher.
Make investment decisions keeping your long-term goals in mind. A good portfolio will give you high returns, help save tax, and provide you with high liquidity. Start planning beforehand to make the most out of the available tax-saving instruments.