Tax saving instruments effectively help you achieve financial goals. All investment schemes available currently in the market offer tax deduction benefits u/s 80C, 80D and 80CCC.
Especially short-term tax-saving investments play a significant role in distributing or saving your money in various ways. Short-term tax-saving investments can also make a profit if you align them appropriately for your fixed goals. Choosing the right financial instrument for tax saving investments should not only be confined to merely reaping the tax benefits, but also must be studied for liquidity, safety, and returns.
Although primary tax savings for a salaried person start with HRA calculation, you can expand your portfolio by understanding the basics of a few best tax saving investment options. You can either invest in government schemes like public provident fund, bonds, fixed deposits, or you can purchase insurance plans to get various other benefits.
Watch: Top 5 Tax Saving Tips
Here are some short-term tax saving investment options where you can invest for capital gains other than saving the tax:
#1 Equity Linked Savings Scheme (ELSS)
Equity Linked Savings Scheme offers tax exemption up to Rs 1.5 lakhs under section 80C. With a 3-year lock-in period, it provides an interest rate of 15-18%. However, returns may not be fixed in an equity linked savings scheme; it offers capital gains as per the performance of the fund in the market. To increase returns, you can invest in more than one equity linked schemes depending upon the different industry or market cap. It is best suited if you have a high-risk appetite. Such tax saving investment schemes offer significant returns in the long run with tax benefits.
#2 Health Insurance
Purchasing health insurance can get your tax exemption of up to Rs 25,000 under section 80D; however, for senior citizens, the amount extends up to Rs 50,000. Health insurance is a smart tax-saving investment where you can get dual benefits – tax savings and coverage against medical bills. Since medical emergencies can arrive anytime, health insurance takes care of your medical bills, making sure you focus on the recovery. While purchasing health insurance, you must look for policies from reputable insurers that have the highest claim settlement ratio.
#3 Debt-Oriented Mutual Funds
Debt-oriented mutual funds are one of the best tax-saving investments, highly suitable for short-term gains. Under debt-oriented funds, you can invest in corporate bonds and government securities that generate a fixed interest. Apart from earning fixed interest, this short-term tax saving investment also offers a capital appreciation. They are also known as fixed-income securities.
#4 Single-Premium Life Insurance
It is a type of insurance where you get the coverage for a specific period after paying the entire premium at the time of buying the policy. Under section 80D, the premium paid up to Rs 1.5 lakhs can be exempted from taxes. Single premium life insurance offers similar death benefits as term insurance, where the sum assured is paid to your beneficiary upon your unfortunate demise. It is especially suitable for those individuals who have a little extra capital from which they want to get tax benefits along with life cover.
#5 Rajiv Gandhi Equity Savings Scheme (RGESS)
It is one of the best tax saving investments in the country as it attracts higher capital gains. The scheme was started in 2012-13 with an income ceiling of Rs 10 lakhs, which was later raised to Rs 12 lakhs in 2013-14. RGESS was initially started for small investors who have little or no investment experience. A distinctive feature of this scheme is that you qualify for a 50% deduction of the amount invested from your taxable income. You can get deductions up to Rs 50,000 per financial year.
Choose the Best Short-Term Tax Saving Investment Goal
Your short-term tax saving investments should be based on your investment goals, the limit of your investment amount, risk appetite, and financial needs. If you don’t have any risk appetite, consider investing in health insurance. Since it is the best tax saving investment if you have zero risk appetite, you must ensure to buy it from a reputable company. Health insurance plans offer comprehensive coverage at nominal premium payments. These plans also provide enhanced coverage against various medical treatment expenses with the benefits of cashless hospitalization.