The current lockdown situation in the country has given a few options for investors to park their money in financial portfolios to reduce the tax burden. The last-minute announcement from the Finance Minister - Nirmala Sitharaman to extend the deadline for investing in tax saving instruments to June 30, 2020, from the usual deadline of March 31, 2020, has given a breather to the investors.
But the question which arises now is amidst the current lockdown situation, how to step out of the house for investing the hard-earned money and which exact instrument to invest in?
The development of technology and the accessibility to the internet has eased things as most of the work can be done sitting at home comfortably. All one needs to have is access to internet banking.
Let's look at the best online tax saving investment options amidst the ongoing lockdown situation in India.
Investing money in insurance is one of the most essential and efficient ways of saving money. One can go for either life insurance or health insurance. Insuring oneself and family helps you to build a shield of protection and guards you during distressing times which comes unexpectedly.
Payment of premium is allowed as a deduction under Section 80C of Income Tax Act of 1961 and the overall limit is capped at Rs 1,50,000 per annum.
If you are opting for pure insurance coverage then go for a term plan as it is eligible for a rebate from Income Tax. Do note, that the annual premium for a life insurance policy should not exceed 10% of the sum assured and in case if it does exceed, then the tax benefit will be restricted up to the 10% of the sum assured.
If the annual premium amount exceeds 10 per cent of the total sum assured then the maturity proceeds will not be treated as tax-free under Section 10(10D).
If an investor is looking to purchase an independent health cover for themselves and their family (covers parents, spouse, children) despite being covered under the existing employer's group policy, then the amount paid towards the premium can be claimed as deduction under Section 80D.
An investor can purchase or can even renew the insurance policies online at one go. If the investor does not have any pre-existing illness then the application process and acceptance of the same will be quicker.
But if they have any pre-existing illness (hypertension, diabetes and so on) some of the insurance companies will offer a tele-underwriting service. That is, after you submit your application online, you will be receiving a call from a Doctor within 24 hours who will ask you more details about your health condition, health history, medications and so on.
Please Note: One should complete the Know-Your-Customer (KYC) process if you are going for a term policy. If it is a health insurance policy then KYC is not mandated. Most of the insurance companies provide e-KYC facilities as well, you can fill in your KYC form online if you have not done it already.
5 Year Tax Saving Fixed Deposits
As the name suggests, this is a tax saving financial instrument which will help investors to save their tax amount. Fixed Deposit (FD) being one of the favourite forms of investment amongst most of Indians, this forms the best form of investment bet to go for during the current critical situation.
The high degree of safety which bank FDs offer helps the risk-averse investors to park their funds in it despite the fact, that it fetches them lower interest rates. Investing in term deposits will provide relief under Section 80C of the Income Tax Act up to the limit of Rs 1.5 lakh per annum.
Investors can invest in the 5 - year tax saving fixed deposit through net banking and there is no need to visit the nearest bank branch to get the transaction done.
The only drawback of this scheme is an investor cannot withdraw it partially until the completion of a five-year term which means the lock-in period remains for five years.
National Pension System (NPS)
Investing in the national pension system to secure your life post-retirement is also the best form of investment. Under NPS investor will get pension fund managers and asset classes which includes investment in either stock, bonds and government securities.
There will be two investment options, one is an active choice wherein the investor can select their asset allocation as per their preference and the other one is auto choice.
One can open an online NPS account through the eNPS portal of the National Securities Depositories Ltd (NSDL).
Please Note: To invest online in an NPS account even if it is for the first time one should have enabled their internet banking. One can even open an NPS account at various Point-of-Presence outlets, be it post offices and banks by duly filling and submitting the Permanent Retirement Account Form. It is mandatory to quote the Permanent Retirement Account or PRAN which will be allocated to every investor at the time of investment, every time.
The investment made towards NPS is eligible for rebate under Section 80C and Section 80CCD(1B) of Income Tax Act. One can claim for deduction of up to Rs 1.5 lakh per annum for the investment made toward NPS under Section 80C and get another Rs 50,000 rebate under Section 80CCD(1B), totally saving a sum of Rs 2 lakh per annum from income tax.
Investing in tax saving mutual funds is also one of the investment bets which is eligible for deduction under Section 80C and one can invest up to Rs 1,50,000 per annum. The investment made towards Equity Linked Savings Schemes or ELSS can be done via online.
Though mutual funds are subject to market risks and given the current volatility of the equity markets, the three-year lock-in period offered by the ELSS comes in as an advantage for the investors.
Analyst note that the existing situation will not last for long and the long-term investment should be focused at the moment to reap better returns.
First, get in touch with a financial advisor if you prefer to invest on your own you can do so via online mode. If you do not have an online account, then most of the mutual fund houses will help you to purchase units online.
All one has to do is to quote their folio number (similar to bank account number allotted to mutual fund investor), basic details, mobile number, number of units you can buy and so on.
If in case you do not have an internet banking account then making payments through Unified Payment Interface (UPI) app be through your respective bank's app or Google Pay can also be done. But as of now, only a few mutual fund houses will allow investors to use UPI for making payments.
About the Author
Archana is a content writer at GoodReturns. She has been writing articles related to investment planning and personal finance for more than two years.