7 effective tax saving instruments to cut your outgo

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7 Effective Tax saving Instruments to
cut your outgo

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About Us
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Introduction
 Tax planning plays a vital role in financial planning.
 A proper planning and analysis is required before implementation.
 An early planning of choosing the best tax saving instrument is necessary to meet the
financial goals
 We provide you the 7 most effective tax saving instruments to cut your outgo.

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1. Life Insurance
Life insurance acts as one of the most effective and secure tax saving instruments
The sole purpose of life insurance is to give financial security to the family of the
policyholder in case of his absence.
In addition to the life cover, a life insurance policy offers you tax deductions also.
According to section 80C, the premium paid towards buying or keeping a life insurance
policy active is tax deductible.
The maximum limit for tax deduction is 1.5 lakh, and according to section 10 (10D), the
amount received in the form of death benefit is also tax deductible.

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2. Health Insurance
 Life insurance is not the only insurance product which gives you a tax benefit.
 Health insurance policy also offers you various ways of tax saving.
According to section 80D of Income Tax Act, 1961, the premiums paid towards health
insurance policy are tax deductible.
 We have tabulated different limits of the tax deduction under section 80D.
Person covered Tax limit
Self and Family Rs.25,000
Self and Family + Parents Rs.25,000+RS.25,000
Self and Family+ Senior Citizen Parents Rs.25,000+Rs.30,000
Self and Family(anyone of them is a senior
citizen)+Senior Citizen Parents
Rs.30,000+Rs.30,000

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3. Unit Linked Insurance Plans (ULIPs)
 ULIP offers you long term investment options with tax free returns.
The premium paid in ULIP is invested in equity and debt, according to the risk appetite of
the policyholder.
 According to section 80C of Income Tax Act, 1961, the premium paid towards ULIP is tax
deductible.
The withdrawals in the form of death benefit, maturity benefit or partial withdrawal at the
discretion of the policyholder is tax deductible under section 10(10D).

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4. Public Provident Fund (PPF)
 PPF is a long term saving scheme by the government which comes with a block in period
of 5 years for withdrawal.
 The PPF account matures after 15 years from the date of opening and considered as
one of the most preferred tax saving instrument.
 The PPF account can be opened in a post office or bank, in which you can spend from
Rs.500 to Rs.1.5 lakh.
 Tax deduction in PPF is given under section 80C of Income Tax Act,1961.
 The investment (up to 1.5 lakh), interest earned and maturity received under PPF is free
from any tax liability.

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5. New Pension Scheme (NPS)
 New Pension Scheme is one of the best tax saving instrument which can help you
with your retirement planning also.
 New Pension Scheme is famous for its low cost structure and flexibility.
 It is a market linked product and therefore offers returns based on the fund
performance.
 The total deduction allowed in the scheme under section 80C and 80CCD is Rs.2
lakh.
 All the contribution to New Pension Scheme up to Rs.1.5 lakh is not taxable. The
NPS has two tiers, Tier 1 and Tier 2, and a subscriber cannot withdraw from Tier 1
account which has been made for retirement saving, he or she can avail tax
benefit in Tier 2 account.

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6. Equity Linked Tax Saving Scheme (ELSS)
ELSS is one of the best tax saving instrument because of high return and.
It has the lowest lock in period of 3 years which is the shortest period among
all tax saving instruments.
It also offers the flexibility of investing just Rs.500.
Investment of up to 1.5 lakh can earn a tax benefit under section 80C.
The money invested in ELSS grows with investment in equity market, which
offers long term capital gain without any tax liability.
You are also not bound to keep investing after the lock in period as in the case
of a pension plan.

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7.Tax Saving Fixed Deposits (FDs)
Taxes saving FDs are considered as one of the easiest tax saving instrument.
It comes with a lock in period of 5 years and tax deduction under section 80C on
investment up to 1.5 lakh.
The return on tax saving FDs varies from bank to bank and ranges between 7-9%.
With 100% capital protection, FD also offers you guaranteed returns.
After maturity, the interest is added to the investor’s taxable income.

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Snapshot of the 7 mentioned above tax saving instruments:
Tax Saving Instrument Interest Lock in Period
Life Insurance Policy 5.5-6% 2 years
ULIPS 8-10% 5 years
PPF 8.1% 15 years
NPS 8-10% Till retirement
ELSS 12-15% 3 years
Tax Saving FDs 7-9% 5 years

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7 effective tax saving instruments to cut your outgo

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