Tips to choosing the right tax saving options

Paying a part of your income feels very grueling at times. However, the government has provided some ways in which this burden can be reduced by choosing appropriate expenditure and investment options. Choosing proper tax saving schemes in India and planning your taxes properly can help you get a hold of your budget. Here are the tips that you need to consider before you file your Income Tax return this year. 

1. Check if you are already eligible for deductions - Medical insurance premiums can be claimed up to Rs. 50,000 (Rs. 25,000 for self, spouse, and children and additional Rs. 25,000 for dependent parents) under section 80D. Medical insurance premiums up to Rs. 1,00,000 can be claimed for senior citizens. The interest on home loans can be claimed up to Rs. 50,000 under section 80EE. Donations to charity can be claimed under section 80G. Also, the principal of home loans and insurance premiums can be covered under section 80C. Make sure you are using these tax saving options before you plan your investments.
2. Consider the investment options under 80C - The most popular tax saving options in India fully under section 80C of the Income Tax Act. This section includes different investment options. A maximum deduction of Rs. 1.5 lakh can be claimed in a financial year. For the most conservative investors, tax-saving fixed deposits are available. Public Provident Fund, Employees' Provident Fund, National Pension System, National Savings Certificate, Unit Linked Insurance Plan, and ELSS schemes are among the other tax-saving avenues investors can use. Have a SIP mutual fund calculator to check out how much you want to invest every month.
3. Take a look at the lock-in period - Now, you should take a look at the investment horizon. If you invest your income in PPF, for example, the money will be locked for 15 years, at the least. With NPS, the money will be locked till retirement. With ULIP and SCSS, the money is locked for only 5 years. The same happens when you put your money in tax-saving fixed deposits. ELSS has the smallest lock-in period. When you are considering the tax saving schemes in India, the lock-in period is an important metric to look at.
4. Returns with each investment option - While PPF falls under the EEE (exempt-exempt-exempt tax deduction category), it does not get you high returns. ELSS funds can earn you as much as 15% to 18% returns. NPS gets you good returns, around 12% to 14%, and also falls under the EEE category currently. Also, NPS is deductible under section 80CCD and allows additional deduction along with 80C instruments. You need to keep your SIP mutual fund calculator handy if you would like to find out how much return you can earn.
5. Tax exemption categories - EEE, EET, and ETE are terms used to define taxation on various instruments. The money is taxed at different stages - When you invest when the investment earns returns and when you withdraw the lump sum amount of money. PPF, EPF, and NPS enjoy the EEE (exempt-exempt-exempt) tax deduction criteria. National Savings Certificate and other pension schemes fall under the EET(exempt-exempt-taxable) category, while the tax-saving fixed deposits fall under the ETE(exempt-taxable-exempt) category.

While choosing the right tax saving options, these are the tips that you need to follow.