For salaried employees, investments for tax planning must have prudent asset allocation of debt and equity. This will ensure that such investments made every year not only save on tax outgo but also build a corpus in the long-run, which is inflation protected.
At present, one of the most important components of tax savings is Section 80 C of the Income Tax Act, 1961. An individual can invest up to R1.5 lakh in a fiscal year in financial instruments like Public Provident Fund (PPF), life insurance premiums, five-year bank or post office fixed deposits, five or 10-year National Savings Certificates of India Post, employee’s contribution to provident fund, Equity-Linked Savings Scheme (ELSS) of mutual funds and unit-linked insurance plans (Ulips) of life insurance companies. Moreover, a tax-payer can avail an additional exemption under Section 80CCD of R50,000 by investing in government’s National Pension Scheme which is a mix of equity and debt instruments.