9 Best Tax Saving Instruments

One should plan their tax saving investments at the beginning of the financial year. Do not wait for end of the financial year which can lead to wrong choice of instrument. I am listing here 9 tax saving instruments one can consider while doing tax planning.

1. Term Insurance Policy

Everyone who is having some liabilities or having dependent people should purchase a pure term insurance policy. I have used word purchase because it is a expense (and should be a mandatory expense) which provides cover to life. Life cover may differ from person to person depending on liabilities or dependent people. One can avail tax benefit under section 80C.

Please read "Term Insurance - Points To Remember Before Purchasing" blog post before purchasing the term Insuranse.

2. Health Insurance Policy

Purchase a health insurance for self and dependent peoples so that it will provide cover to your savings if some medical emergency arise. Medical emergency can make a big hole in your savings which can affect your future goals. One can avail tax benefit up to 15000 for self, spouse, children and non-senior citizen parents and up to 20000 for self, spouse, children and senior citizen parents.

3. Public Provident Fund (PPF)

After purchasing term insurance and health insurance one should choose the investment instruments which provide tax benefit. Public Provident Fund (PPF) is one of the best debt investment instrument which provide tax benefit under section 80C and the best part is on maturity (15 years) whole amount is tax free. For more details of PPF please read this post.

http://www.financebandhu.com/2013/08/public-provident-fund-basics.html 

4. National Saving Certificate (NSC)

National Saving Certificate is also a good debt investment instrument which provides tax benefit under section 80C. Unlike PPF, on maturity (5 years) interest earned is taxable.

5.  Tax Saving Mutual Funds

If you want returns as per market returns and also want to avail tax benefit you can select any good tax saving mutual fund. These funds are subjected to lock in period of 3 years and one can avail tax benefit under section 80C.

6. Mutual Fund Pension Plan

Everyone should plan for their retirement and mutual fund pension plan can be one of the instrument to fulfill the retirement goal. One can avail the tax benefit under section 80C. I will cover the mutual fund pension plans in future posts.

7. New Pension Scheme (NPS)

New Pension Scheme (NPS) is gaining the popularity from some time. Like tax saving mutual fund and mutual fund pension plans, NPS returns also depend on market. One can avail tax benefit on up to 1 lack (employer contribution) under section 8CCD(2) which is other than 1 lack limit of 80C. Remember your contribution will get tax benefit under section 80C only.

8. Tax Free Bonds

RBI and GOI issues tax free bonds time to time and one can avail the tax benefit provided by these bonds.

9. Charity

Doing charity is good. One can avail the tax benefit under section 80G on the amount given to charity.

Do you have any other good tax saving instruments in your mind which I haven’t listed above?

Please provide your views.