4 Things to Consider Before Making Tax Saving Investments

Something as important as your tax-saving investments should not be made on ad hoc basis without keeping a certain goal in the forefront. However, most of us have this bad habit of not even starting up before the company pushes those final calls for the submission of investment proofs. 

To make the Best Tax Saving Investments, you need to base your decision on the following four important factors besides choosing a suitable tax-saving instrument which can aptly link with your specific goals.

1. Deduction Limit: As per section 80C, you are allowed deduction of up to 1.5 lac per annum one or more specified group of investments/expenses on your total gross income.   

The investments which can be covered under 80C include:-

• mutual funds

• life insurance policies

• public provident fund 

• ELSS 

• National saving certificate etc.

While the expenses on which you can avail the tax saving benefits include the following: 

• Kids tuition fees

• The principal repayment amount of house loan etc.

In case you have already exhausted your limit of 1.5 lac, you have still got an option to invest in some retirement schemes to save more tax.

2. Fresh Investments: Do a double-check at your end to evaluate if you need to make new savings for the current financial year. You may do so but running through all the investments made and the expenses covered under 80C, 80D and other deductions for which you have committed this year.

Now you may minus this figure from your total gross income and what you'll be left with be your total taxable income. In case this value goes past the exemption limit 2.5 lac, then you need to look out and start making some fresh best Tax Saving Investments.   
 
3. Tax Saving Instruments: Under section 80C, you have two investment options available to choose from. 

• Fixed and assured returns: As the name suggests, the returns are fixed and are as per the interest rates prevalent at the time of investment. This may include the options like tax saving fixed deposits (5-year FDs), endowment life insurance plans, debt assets, senior citizen schemes etc. Fixed and assured return option is preferable in case you are a rather conservative investor who plans to preserve the capital.

• Market linked returns: Under this option, the return on your investments are not guaranteed and primarily depends upon the performance of the underlying assets. You may decide to invest in Equity-linked saving schemes, pension plans, unit-linked insurance plan etc.

4. Investment Term: Most of the tax saving investments carry the tenure of medium to long term. For example, Equity-linked saving schemes come with a lock-in duration of 3 years while a PPF has got a relatively long tenure of 15 years. Besides this, you have life insurance policies where yearly payments need to made for a considerable number of years- Choose what is preferable and works best in your case.