The final date for submitting the income tax return (ITR) is approaching, and people are now seeking ways to reduce their taxable income without locking in their funds for years. There are several investment instruments, including Equity Linked Savings Scheme (ELSS), Public Provident Fund (PPF), and others, which require a long-term commitment. There are other instruments which are known to provide liquidity, come at lower risk, and entail efficient Section 80C or other related deductions. Therefore, these serve as ideal choices for users who seek financial flexibility.
With the above-discussed factors under consideration, the following are the tax-saving options:
1. Employee Provident Fund contributions
For individuals earning salaries, the contributions made towards the Employee Provident Fund (EPF) automatically qualify for Section 80C deductions. While the EPF has a retirement-oriented vision and structure, partial withdrawals are still allowed for purposes including medical emergencies, home ownership, education, marriage, and others.
2. Tax-saving fixed deposits with a 5-year lock-in period
There are several banking institutions which offer 5-year tax-saving fixed deposits (FDs) under Section 80C. Despite these entailing a five-year lock-in period, they also provide premature liquidity in emergencies. These can be availed in the form of a personal loan or an overdraft, unlike PPF or NPS.
3. Home loan principal and interest
Repayment of the principal amount of a home loan qualifies for deduction under Section 80C, while interest payments of up to Rs 2 lakhs are deductible under Section 24(b). Under this, there’s no fixed lock-in and deductions can be claimed on an annual basis.
4. Tax benefits on health insurance premiums under Section 80D
Health insurance continues to remain a popular tax-saving option recommended by banks and financial advisors. Premiums of up to Rs 25,000 are deductible under Section 80D, with the limit increasing to Rs 50,000 for senior citizens.
5. National Pension System – Tier I (long-term) and Tier II (flexible withdrawal) accounts
The National Pension System (NPS) provides an additional deduction of up to Rs 50,000 under Section 80CCD(1B), over and above the Rs 1.5 lakh limit under Section 80C. While Tier I accounts are designed for long-term retirement savings, Tier II accounts provide greater flexibility with withdrawals.
