Here are prominent tax saving options to add to your investment kitty

Every year, a lot of us struggle to calculate how much tax we need to pay and look for available options to make the right investments to save maximum tax. However, while investing in different tax saving products is quite easy, investing in the right investment products is what matters the most. When planning to invest in insurance products, it is important to have the best knowledge of each product and its attached benefits. While making an investment, it is not just the tax saving factor that should be kept in mind, the return of investment factor must also be given appropriate importance. To help you, here are some prominent tax saving options that will assist you in making a wise and informed decision.

Health insurance

A popular way of saving tax while staying insured against any medical expenses is by investing in a health insurance premium. According to the Section 80D of the Income Tax Act, 1961, the premiums paid against a health insurance policy qualify for tax exemption. The maximum exemption that you can avail under Section 80D is Rs 75,000 that includes Rs 25,000 for health insurance taken for self, spouse and dependent children and Rs 25,000 for health insurance taken for parents. But in case the dependent parents are senior citizens, the exemption can go up to Rs 50,000. Under a health insurance cover, you may choose to invest in indemnity or fixed benefit plans.

Life insurance

Another impressive way of saving tax while staying insured is by investing in a life insurance plan. The premiums paid towards a life insurance policy quality for tax exemption under the Section 80C of the Income Tax Act, 1961. The maximum deduction limit under the section is Rs 1.5 lakh and apart from policies bought for self, you can also avail tax benefit on premiums paid for the policies bought for your parents, spouse and kids. An exclusive benefit of investing in life insurance is that the sum assured received by the beneficiaries or dependents of a policyholder in case of death of the insured is also exempted from tax deduction. However, in order to avail the benefit, one must know that the premium for policies purchased before April 1, 2012, must not exceed 20% of the sum assured and premium for policies purchased post April 1, 2012 must not exceed 10% of the sum assured.

Unit linked insurance plan

The new-age Unit Linked Insurance Plans or 4th generation ULIPs are highly popular in the market following to their reduced charges and better transparency. By investing in ULIPs, you can easily save tax under sections 80C and 10(10D) of the Income Tax Act, 1961. The exemption limit under Section 80C is up to Rs 1.5 lakh per year and the premiums paid against investment in ULIPs is exempted from tax deduction. A ULIP comes with a mandatory lock-in period of 5 years and can be bought for a term of 15, 20, 25 or 30 years depending upon your needs and requirements. Also, the fund value on exiting the on exiting the policy (allowed after 5 years) or on maturity is tax-free.

Child plans

The earlier you start planning for your child's future the more secured it becomes. There is a plethora of child plan options available in the market that promise secured and guaranteed returns. Under a child plan, you can start by investing within 60 to 90 days of your child's birth and the earlier you invest, the bigger will be the corpus when you require it at the right time. A smart way of investing is investing in the unit linked child plans initially and eventually moving to de-risk the policy to safer funds. The premiums paid against various child plans qualify for tax exemption under the 80C of Income Tax Act, 1961 which allows a maximum tax exemption of Rs 1,50,000 per year.

The writer is chief business officer - life insurance, Policybazaar.com