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Friday, March 5, 2021

There is a double benefit on investing in the post, a good return and tax exemption

 There is a double benefit on investing in the post, a good return and tax exemption


The tax saving season is on and both the salaried and non-salaried taxpayers would have started comparing tax saving investment options. As an investor, one should look for investment options that not only helps you save tax but also generate tax-free income.

This year, you have to keep one more thing in mind -- the income tax regime you have opted for. From FY 2020-21, an individual can continue with the old/existing tax regime by availing of existing deductions and tax exemptions. He/she also has the option to opt for the new, concessional tax regime without claiming any deductions and tax exemptions. The tax benefits one forgoes by opting for the new tax regime include deductions under: section 80C for a maximum of Rs 1.5 lakh claimed by investing in specified financial products, section 80D for health insurance premium paid, 80TTA for deduction on savings account interest earned from a bank or post office etc. (New vs existing tax regime: All you need to know)

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Choosing the right tax saver
While choosing the right tax saver, among several other factors such as safety, liquidity and returns, make sure you understand how the returns would be taxed. If the income earned is taxable, the scope to make money over the long run gets constrained as taxes will eat into your returns.

ADVERTISEMENTIn tax-saving financial products like the National Savings Certificate (NSC), Senior Citizens' Savings Scheme (SCSS), 5-year time deposits with banks and post offices, the interest amount gets added to your income and therefore is liable to be entirely taxed.

So, even though they help you save tax for the current year, the interest income becomes a tax liability each year till the end of the tenure. "One must note that (taxable tax savers) instruments will help in saving the tax to an eligible limit both on investments and on maturity. Since they come with tax benefits, the returns on them are likely to be below the market returns," said Anil Rego, cheif executive officer and founder of Right Horizons.

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