The new year is about to begin, and everyone must be wondering how to reduce their taxes this time. Income tax is a major concern, but there is a simple solution: using insurance and investment plans correctly.
These options not only help you save tax but also help you build wealth for the future. Let’s understand everything in a clear and simple way, step by step.
Section 80C: The Most Popular Deduction
The first and most widely used option is Section 80C. Under this section, you can invest up to 1.5 lakh rupees and claim tax benefits.
Investment Options Under Section 80C
- ELSS Mutual Funds: These are equity-based funds with a 3-year lock-in period. They offer good long-term returns along with tax savings.
- Public Provident Fund (PPF): A government-backed option with a 15-year lock-in. The interest earned is tax-free.
- National Savings Certificate (NSC): A safe investment with a 5-year maturity and fixed interest.
- 5-Year Tax Saver FD: Fixed deposit with a 5-year lock-in. Interest is taxable, but the principal qualifies for deduction.
- Life Insurance Premium: Premium paid for term plans or ULIPs is eligible under Section 80C.
You can combine these options to reach the 1.5 lakh limit and save tax on that amount.
Section 80D: Extra Savings with Health Insurance
Health insurance premiums also help reduce tax under Section 80D.
- For self and family: Up to 25,000
- For parents (non-senior citizens): Additional 25,000
- For senior citizen parents: Up to 50,000
This means you can claim a total deduction of up to 1 lakh if your parents are senior citizens. An additional 5,000 can be claimed for preventive health check-ups.
Life Insurance: Term Plan or Endowment?
A term plan is the most affordable option for life cover and offers strong financial protection. The premium is eligible under Section 80C. If you want insurance with savings, you can choose endowment plans or money-back plans, but their returns are comparatively lower.
ULIP (Unit Linked Insurance Plan) combines insurance and market-linked investment. It offers tax benefits under 80C, but charges are usually higher.
NPS: Bonus Saving for Retirement
The National Pension System (NPS) provides an additional tax benefit under Section 80CCD(1B) of up to 50,000.
This means:
- 80C limit: 1.5 lakh
- Extra NPS benefit: 50,000
- Total tax-saving investment: up to 2 lakh
NPS is designed for long-term retirement planning. Withdrawal is allowed at 60 years, and it offers both tax savings and growth potential.
| Section | Deduction Limit | What is Covered |
|---|---|---|
| 80C | 1.5 lakh | ELSS, PPF, NSC, Tax Saver FD, Life Insurance Premium |
| 80D | 25,000 (Self) + 25,000 / 50,000 (Parents) | Health Insurance Premium |
| 80CCD(1B) | 50,000 (Extra) | NPS Contribution |
| Total Maximum Saving | Up to 2.5 lakh | Combining all sections |
Pros and Cons
Pros
- Significant tax savings throughout the year
- Helps in securing your future, health, and retirement
- Government-backed options offer safety
- Equity-based plans can generate strong long-term returns
- Easy to start and manage online
Cons
- Lock-in periods apply to most options
- Returns are not guaranteed in market-linked plans
- ULIPs have comparatively higher charges
- Health insurance claims involve a process
- Tax rules may change over time
Conclusion
Saving tax does not have to be complicated. By using Section 80C, Section 80D, and NPS wisely, you can protect your family and build long-term wealth. It is always a good idea to consult a financial advisor or use an online calculator to understand your exact savings. Start planning early instead of waiting until the last moment.
