How To Axe Your Taxes

Hot tip: Look beyond‘ investments’ eligible for tax deduction

- Priyadarshini Maji

This piece of advice is trotted out once every year as the financial yearend approaches. So here goes: it’s best to plan your tax-saving investments earlier, and stagger some of the investments over the year. And if it’s tax savings you seek, first count in the eligible payouts, on which tax deductions may be claimed to reduce the overall tax burden.

Equity Linked Savings Schemes (yearend): These mutual funds invest in equities with a lock-in period of three years. It’s a good option if you want to save tax as well as grow your money as they mostly deliver the highest returns among tax saving instruments. There is no tax if you withdraw the money after the lock-in period. In the past one year, the average return of ELSS has been around 42 per cent, while the three-year return has been around 15 per cent.

Unit Linked Insurance Plans (ULIPs): These insurance plans provide the benefit of both investing in equities and insurance. The lock-in period is five years and the returns depend on the performance of the underlying instruments. If the premium paid on the policy is less than 10 per cent of the sum assured for policies purchased after April 2012 and 20 per cent before that, the amount received on maturity is exempt from tax. For premium higher than 10 per cent, the entire amount is added to the income and taxed as per one’s income tax slab.