Tax

5 Best Tax Saving Options & Plans for Financial Year 2016-17

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Tax-saving is an important part of financial planning. An intelligent tax-planning strategy can serve the dual objective of helping individuals meet their financial goals and save tax in the process.

Here is a list of some of the best tax saving options, plans and schemes for 2016 that can help individuals maximize tax benefits:

Sr No. Tax Saving Option & Plan Tax Benefit Under Section
1

Life Insurance

Section 80C (Premium) Section 10(D) (Death / Maturity)
2

Pension Plans

Section 80CCC(sub-section under Section 80C)
3

Health insurance or Mediclaim

Section 80D
4

NPS

Section 80CCD
5

Tax-saving mutual funds

Section 80C Section 10(D) (Death/Maturity)

 

  • Life insurance
    Life insurance plays an important role inthe individual’s financial portfolio offeringsecurity to the individual’s family in case of an eventuality. This makes it the breadwinner’s primary responsibilityto take life insurance at the earliest for the family’s security.

    Life insurance, be it traditional (endowment) or market-linked (ULIP), offers tax benefits to policyholders on the premiums paid.

    There are various life insurance plans like:

    1. Term plans

    2. Endowment plans

    3. ULIPs or unit-linked plans

    4. Money back plans

    Regardless of its nature, life insurance plans offer tax benefits to policyholders.

    Premiumspaid towards life insurance are covered under Section 80C of the Income Tax Act up to a maximum of Rs 1.5 lakhs. Proceeds on death / maturity are tax-free under Section 10(D).If policyis surrendered/terminated withinfive years, deductions claimed are added to income and taxed accordingly

  • Pension plans
    Pension Plans is another form of life insurance. They serve a different end-objective from other insurance plans like term plans and endowment plans – which are called protection plans. While protection plans are geared to financially secure the individual’s family on his death, pension plans aim at providing for the individual and his family if he lives on.

    Contributions towards pensionare covered under Section 80CCC(sub-section under Section 80C) of the Income Tax Act. The aggregate limit of deduction under all the sub-sections of Section 80C cannot exceed Rs 1.5 lakhs.

    On maturity 1/3rd of the accumulated pension amount is tax free with the balance 2/3rd treated as income and taxed at the marginal tax rate. The amount is tax free upon death of beneficiary.
  • Health insurance or Mediclaim
    Health insurance or Mediclaim as it is more popularly known, covers expenses incurred from an accident/hospitalization. Mediclaim also covers pre and post-hospitalization expenses, subject to the sum assured

    Health insurance offers tax benefits under Section 80D. Insurance premium upto Rs 20,000 for senior citizens and Rs 15,000 for others is eligible for tax benefit. If the policyholder pays Rs 15,000 as premium on his own policy and Rs 20,000 for his parent, a senior citizen, he can claim tax benefit of Rs 35,000 (Rs 15,000+20,000). Maturity value is tax free for sum received under critical illness insurance policies policies

  • NPS
    The NPS or the New Pension Scheme is regulated by the Pension Funds Regulatory and Development Authority – PFRDA. Any citizen of India over the 18 – 60 years age bracket can participate in it. It is extremely cost effective since fund management charges are low. The fund managers manage the money in three separate accounts having distinct asset profiles viz. Equity (E), Corporate bonds (C) and G Government securities (G). Investors can choose to manage their portfolio actively (active choice) or passively (auto choice).

    Contributions made to the NPS are covered under Section 80CCD of the Income Tax Act. The aggregate limit of deduction under this section along with Sections 80C, 80CCC cannot exceed Rs 1.5 lakhs.

    Given the range of options, NPS is particularly useful for individuals, with varying risk appetites, looking to set aside money towards retirement.

  • Tax-saving mutual funds
    Investments in tax-saving mutual funds, also known as equity-linked savings scheme (ELSS), qualify for tax benefits. Tax-saving mutual funds invest in stockmarkets, among other assets, and are more suited for investors with medium to high risk appetite. Investments are locked in for three years.

    Investments towards tax-saving mutual funds are covered under Section 80C of the Income Tax Act up to a maximum of Rs 1.5 lakhs. Proceeds on death / maturity are tax-free under Section 10(D).

  • Health insurance or Mediclaim
    Health insurance or Mediclaim as it is more popularly known, covers expenses incurred from an accident/hospitalization. Mediclaim also covers pre and post-hospitalization expenses, subject to the sum assured

    Health insurance offers tax benefits under Section 80D. Insurance premium upto Rs 20,000 for senior citizens and Rs 15,000 for others is eligible for tax benefit. If the policyholder pays Rs 15,000 as premium on his own policy and Rs 20,000 for his parent, a senior citizen, he can claim tax benefit of Rs 35,000 (Rs 15,000+20,000). Maturity value is tax free for sum received under critical illness insurance policies policies

  • NPS
    The NPS or the New Pension Scheme is regulated by the Pension Funds Regulatory and Development Authority – PFRDA. Any citizen of India over the 18 – 60 years age bracket can participate in it. It is extremely cost effective since fund management charges are low. The fund managers manage the money in three separate accounts having distinct asset profiles viz. Equity (E), Corporate bonds (C) and G Government securities (G). Investors can choose to manage their portfolio actively (active choice) or passively (auto choice).

    Contributions made to the NPS are covered under Section 80CCD of the Income Tax Act. The aggregate limit of deduction under this section along with Sections 80C, 80CCC cannot exceed Rs 1.5 lakhs.

    Given the range of options, NPS is particularly useful for individuals, with varying risk appetites, looking to set aside money towards retirement.

  • Tax-saving mutual funds
    Investments in tax-saving mutual funds, also known as equity-linked savings scheme (ELSS), qualify for tax benefits. Tax-saving mutual funds invest in stockmarkets, among other assets, and are more suited for investors with medium to high risk appetite. Investments are locked in for three years.

    Investments towards tax-saving mutual funds are covered under Section 80C of the Income Tax Act up to a maximum of Rs 1.5 lakhs. Proceeds on death / maturity are tax-free under Section 10(D).

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