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Tax Saving Investment Options in 2023

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Are you looking for ways to save on your taxes in India for the year 2023? If so, you’re in luck! Several investment options can help you save on your taxes while also growing your wealth. This blog will explore some of the best tax-saving investments in India for 2023.

From conservative options like Public Provident Fund (PPF), life insurance and Employees Provident Fund (EPF) to more market-linked options like Equity-Linked Savings Schemes (ELSS), Unit Linked Insurance Plans (ULIPs) and National Pension System (NPS), we will cover all the bases to help you make an informed decision about where to invest your hard-earned money.

Whether you’re a seasoned investor or just starting out, this blog will provide you with the information you need to make smart tax-saving investment choices in 2023.

Best Tax Saving Investments in 2023

1. Life Insurance

One way to save on taxes in India is by investing in life insurance. Life insurance policies not only provide financial security for your loved ones in the event of your untimely demise, but they can also offer tax benefits.

  • Premiums paid for a life insurance policy are eligible for tax deductions under Section 80C of the Income Tax Act.
  • Additionally, the proceeds from a life insurance policy are generally tax-free under Section 10(10D) of the Act.

It’s important to note that there are limits to the amount of premiums claimed as deductions and certain conditions that must be met to qualify for tax-free proceeds. It’s a good idea to consult with a financial advisor or tax professional to determine the tax implications of a life insurance policy in your specific circumstances.

2. Health Insurance or Mediclaim

With health insurance or a health rider attached to your life insurance plan, the following tax benefits are applicable on the premiums paid:

  • The tax deduction benefits for health insurance or a health rider can be claimed under Section 80D of the Income Tax Act.
  • The tax deduction limit is set at ₹25,000 for policyholders up to 60 years of age and ₹50,000 for senior citizens.
  • Individuals can claim dual tax benefits for premiums paid for their own policy and for their dependent parents’ policy, taking the maximum permissible limit to ₹1,00,000 (₹50,000 for self and ₹50,000 for parents when everyone is above 60 years of age).
  • The sum assured payout would be tax-exempt.
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3.Unit Linked Insurance Plan (ULIP)

Before February 01, 2021, the life insurance-based tax benefits under Section 80C and Section 10 (10D) were applicable to all Unit Linked Insurance Plans.

However, as per amendments under the Finance Act 2021 to Section 10 (10D) from February 01, 2021, some tax-saving ULIPs do not offer exemptions if the policy has been issued on or after February 01, 2021.

For policies bought after February 01, 2021, if the annual life insurance premium paid (for one or multiple policies combined) is ₹2.5 lakh or above, the maturity benefit plus any bonuses will be taxable.

4. ELSS (Equity-Linked Saving Scheme) Mutual Fund

Equity-Linked Saving Scheme (ELSS) is a form of diversified mutual fund on which you can claim a tax deduction of up to ₹1.5 lakhs under Section 80C of the Income Tax Act.

5. National Pension System (NPS)

The NPS or National Pension System offers tax benefits under three sections of the Income Tax Act–

  • Section 80C – Claim tax deductions of up to ₹1.5 lakhs for contributions under the NPS tax saving investment.
  • Section 80CCD (1b) – Claim tax deductions of up to ₹50,000. If your employer contributes 10% of your basic salary, this amount will be tax-exempt.
  • Of the total fund amount, 40% of the amount will be tax-exempt on maturity. However, the annuity that is paid out is taxable.

6. Public Provident Fund (PPF)

The PPF tax benefit comes under the EEE (exempt – exempt- exempt) status. Therefore, the PPF contributions made during the year, the interest on the investment, and the maturity proceeds are all eligible for tax exemptions.

7. Sukanya Samriddhi Yojana (SSY)

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The Sukanya Samriddhi Yojana tax benefit includes tax exemption on the maturity benefits and the interest accrued in the SSY account. The contributions towards the SSY account qualify for tax deductions of up to ₹1.5 lakhs under Section 80C of the Income Tax Act.

8. National Savings Certificate (NSC)

You can claim a tax deduction on the National Savings Certificate on the contributions under Section 80C of the Income Tax Act. The interest earned on the certificates is eligible for tax exemption.

After 2 years of investment, you can claim a tax deduction on the current year’s investment and the interest from the previous year.

But the payouts from the scheme are taxable even though no TDS is applicable.

9. Senior Citizen Saving Scheme (SCSS)

The investment in the SCSS account qualifies for a tax deduction of up to ₹1.5 Lakh under Section 80C of the Income Tax Act, 1961. However, if the interest earned on the SCSS is above ₹50,000 during a financial year, Tax Deducted at Source (TDS) will be applicable on the interest.

10. Tax-Saver Fixed Deposit (FD)

Fixed deposit income tax exemption is applicable on the income earned on the 5-year tax-saving fixed deposits. You can also claim up to ₹1.5 lakh deduction under Section 80C of the Income Tax Act on the amount invested in the year of investment.

Increasing Your Deduction to ₹2 Lakhs under Section 80C

You can claim tax deductions of up to ₹1.5 lakhs on your investments under Section 80C of the Income Tax Act for every financial year. This means that each year, about ₹1.5 lakhs cannot be considered part of your taxable income, which will bring down your net taxable income.

If you want to further reduce your taxable income up to ₹2 lakhs, you can invest in a health insurance policy or add a health rider to your life insurance policy. In this way, you can claim a tax deduction of up to ₹50,000 under Section 80D of the Income Tax Act with health insurance/health riders.

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An investment in the NPS will get you an additional tax deduction of up to ₹50,000 under Section 80CCD (1B). If you fall under the tax slab of 30%, you will be able to save ₹62,400 in taxes. Some other tax deductions are:

  • Under Section 80C of the Income Tax Act, parents can claim a tax deduction on only the tuition fees component of the school/college/university fees.
  • By investing in a child education plan, the parents can claim tax deductions on the premiums paid under Section 80C.
  • You can also invest in a home property and get tax deductions on the interest amount of the home loan up to ₹2 lakhs.
  • If this is a joint investment with your spouse, you both can only claim the amount you have paid towards the home loan interest.

In conclusion, many different tax-saving investment options are available in India for 2023. From traditional options for risk-averse investors to more dynamic market-linked options and everything in between, there is a wide range of choices to suit different investment goals and risk tolerances.

It’s important to carefully consider your options and choose the one that best aligns with your financial goals and risk profile. Additionally, it’s a good idea to consult with a financial advisor or tax professional to ensure that you make the most tax-efficient investment decisions for your specific circumstances.

With careful planning and the right investment choices, you can save on your taxes and grow your wealth in the coming year.

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