10 Best Tax Saving Investment Options For You
The Government of India has designed several tax saving investment instruments for the benefit of the taxpayers. An individual can save on their taxes by investing a particular sum from their taxable income in these tax-saving investment plans under Section 80C of the Income Tax Act, 1961.
Are you a tax-paying Indian citizen? Then one question would have surely crossed your mind is — how to save income tax in India? After all, it hurts to see a percentage of your hard-earned money being spent elsewhere — even for a well-meaning purpose.
To reduce this burden, the Government of India has designed several tax saving investment instruments for the benefit of the taxpayers. An individual can save on their taxes by investing a particular sum from their taxable income in these tax-saving investment plans under Section 80C of the Income Tax Act, 1961. So let us check out the ten best tax saving investment plans that fall under this section.
1) Equity Linked Savings Scheme (ELSS)
The ELSS mutual funds plan is the most yielding tax saving investment instrument of the lot. On top of that, the amount invested in ELSS mutual funds is eligible for tax benefits up to ₹1.5 lakhs under Section 80C of the Income Tax Act, 1961. And the investment fund under ELSS has a three-year locking period.
However, the ELSS mutual funds also come with a high-risk value. The investor can earn a rate of interest of up to 17% in this tax saving investment. However, the gains are dependent on the performance of this ELSS fund in the options trading market. Therefore, the risk is high as the returns are not fixed over the locking period.
To minimise their exposure to risks and to get better capital gains in the long term, the investor can choose to diversify their investment in two or more ELSS schemes depending on their market capitalisation and industry exposure.
2) ULIP (Unit Linked Insurance Plan)
ULIPs are one of the best tax-saving options which provide higher returns in the long term. Plus, they also offer tax benefits under Section 80C of the Income Tax Act. Unlike earlier ULIP plans, the new ULIP plans promoted by insurance companies do not charge any administration fees or premium allocation fees. As a result, the investor gets better returns on their invested sum.
Moreover, the ULIP income tax saving schemes provide the dual benefit of return on your investment as well as insurance cover. Plus, the investor can claim for tax exemption under Section 80C on the premiums paid towards the insurance. ULIP is a low-risk tax-saving option in comparison to ELSS and comes with a five-year lock-in period.
3) NPS (National Pension Scheme)
National Pension Scheme is one of the secure tax saving investment options which provides tax benefits under three separate sections of the Income Tax Act:
- The contributed sum of up to ₹1.5 lakhs can be claimed for deductions in taxes under Section 80C.
- The taxpayer can claim an additional tax deduction of ₹ 50,000 under Section 80CCD(1b).
- If the employer contributes 10% of the employee’s basic salary towards the National Pension Scheme account of the employee, then that particular amount is exempted from taxation.
These triple tax exemptions have immensely increased the demand for NPS as tax saving options for salaried employees. However, at the time of maturity, just 40% of the total sum is exempted from taxation.
4) PPF (Public Provident Fund)
Public Provident Fund is one of the most popular income tax saving investment options among investors and salaried employees. This is one of the long-term income tax saving options, which helps the individual stay financially stable and self-reliant once they retire from the workforce. A maximum amount of up to ₹1.5 lakhs can be claimed for deductions under Section 80C. The maturity period is fifteen years, which can be extended further by another five years.
The rate of interest on the PPF account balance gets reset every quarter. The best part — the amount contributed towards the PPF account, the accrued interest and the total sum received on maturity are all exempted from taxation. Therefore, people consider it among the best tax saving options. Even with a changing rate of interest, the risks are negligible, and the investment remains stable right till maturity.
5) National Savings Certificate
National Savings Certificate is a fixed deposit tax-saving investment instrument available at the post office. Like fixed deposits offered by banks, this savings scheme ensures the security of the investment and is a low-risk tax-saving option. It provides taxpayers with a wonderful opportunity to avail tax benefits by depositing money in this government-initiated scheme.
The tax benefits provided by this policy include:
- The individual can claim for deduction in taxes on a maximum amount of up to ₹1.5 lakhs as per Section 80C of the Income Tax Act.
- The interest earned on the deposited amount gets added back to the principal sum and is also eligible for exemption from taxes.
- In the second year of investment, the individual can claim for deductions in taxes on the amount invested in that particular year along with the interest accrued in the previous year. The interest amount gets added to the principal amount, and it gets compounded annually.
6) Sukanya Samriddhi Yojna
Sukanya Samridhi Yojana is a tax-saving deposit scheme designed particularly for the wellbeing of the girl child. This plan offers an 8% rate of interest and provides tax exemption benefits. The tax benefits provided under this scheme include:
- Investments in Sukanya Samriddhi Yojana of a maximum amount of up to ₹1.5 lakhs are eligible for deductions in taxes under Section 80C of the Income Tax Act.
- The interest earned from the deposit gets added back to the principal sum and is eligible for exemption from taxes.
- The withdrawal amount and the amount received post maturity are also exempted from taxation.
An individual, who has a girl child below 10 years of age, can enrol into the Sukanya Samriddhi Yojana scheme. The scheme will remain operational for a 21-year period from the account opening date until the girl is married after 18 years of age. The scheme offers the steepest rate of interest of 8.5% along with the compounding benefit.
7) Bank FD scheme
An individual can avail tax benefits by depositing money into the bank as fixed deposits for a stipulated period. This tax-saving option is best suited for individuals looking for a low-risk savings scheme.
Unlike a savings account, one cannot withdraw money from the fixed deposit, and the deposit has to be a lump sum payment. The maximum amount that can be claimed for deductions is up to ₹1.5 lakhs as per Section 80C.
8) Senior Citizen Saving Scheme (SCSS)
SCSS is a tax-saving investment scheme backed by the government. It is specially designed for senior citizens to provide them with financial safety and security. The age of the taxpayer should be 60 years or more to qualify for investment in SCSS.
Under the Senior Citizen Saving Scheme, the individual taxpayer can make a one-time deposit of a minimum of ₹1000 and a maximum of ₹15 lakhs for joint account holders or ₹9 lakhs for single account holders.
The investments under SCSS have a five-year lock-in period. Plus, the senior citizen can claim tax deductions of up to ₹1.5 lakhs on the TDS as per Section 80C. Of all the tax-saving instruments, this investment opportunity provides a rate of interest of 8.7% annually. Almost all public sector banks provide the SCSS scheme.
Life insurance policy is also a tax-saving investment option available for taxpayers. However, it is recommended that one should purchase a life insurance policy, not to save taxes but to get insurance cover.
Apart from the benefits of getting an insurance cover, the premiums paid towards the life insurance policy qualify for tax benefits under Section 80C and Section 10(10D) of the Income Tax Act. Even the sum received after the maturity of the policy is exempted from taxation. The maximum amount that can be claimed for exemption is ₹1.5 lakhs.
10) Other tax saving options
Apart from Section 80C deductions, there are different tax-saving options, as mentioned below:
- The taxpayer can claim deductions for taxes on premium payments for the interest on home loan and health insurance.
- An individual can claim up to ₹25,000 as tax benefit on premium payments towards health insurance as per Section 80D of the Income Tax Act.
- A home loan helps to reduce the total taxable income. Under Section 80EE, an individual can claim up to ₹50,000 as a tax benefit on the interest for a home loan. Plus, the principal amount of the loan can be claimed for deductions for up to ₹1.5 lakhs under Section 80C of the Income Tax Act.
These tax-saving investment instruments will certainly help you save taxes on your annual income. Remember that the maximum amount that can be claimed for tax benefits under Section 80C is up to ₹1.5 lakhs. So, even if you have invested in different tax-saving instruments under Section 80C, you will be able to claim cumulative tax benefits up to the maximum limit of ₹1.5 lakhs only.
Nonetheless, you should make use of tax-saving options under different sections of the Income Tax Act to further save your hard-earned money.
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