Tax saving investments are an essential element of everyone's life, these plans help in tax deduction under section 80C or 80CCC.Though these investment plans offer tax deduction many still don't prefer to invest due to lack of proper knowledge or the lower returns that they get for their invested amount and fear of the risk that comes with various investments. Normally tax savings session begins from the 1st of April for both the salaried and non-salaried taxpayers. To make the best out of these tax savings look for both tax exemption and to earn tax-free income. In today's lifestyle, there are many ways to save taxes and to save maximum as possible. Tax savings should be in such a way that it should give you good returns at the end and help you reduce tax. Before choosing the tax-savings investment plans or schemes check for components like the safety, returns, liquidity, terms and check how the return will be taxed. As per the Online Income Tax under the section 80C, the investor is eligible for tax exemption up to the limit of Rs 1,50,000/-. The tax savings investments include ELSS, FD's, LIC, PPF, NSS, and bonds.
Top Tax-Savings Investments: There are many different schemes available to do the tax-saving investments, but the best tax saving schemes are discussed below, these plans work under section 80C.
| Investment Plans | Returns | Lock-in Period |
|---|---|---|
| ELSS Fund | 15%-18% | 3 years |
| Unit Linked Insurance Plan (ULIP) | Returns vary from plan to plan | 5 years |
| National Pension Scheme (NPS) | 12%-14% | Till Retirement |
| Sukanya Samriddhi Yojana | 8.5% | N/A |
| Public Provident Fund (PPF) | 7%-8% | 15 years |
| Senior Citizen Saving Scheme | 8.7% | 5 years |
| National Savings Certificate | 7%-8% | 5 years |
| Insurance | Returns vary from plan to plan | 3 years |
| Bank FDs | 6%-7% | 5 years |
Equity-Linked Saving Scheme (ELSS) Mutual Fund
- ELSS Mutual Fund Scheme provides the Tax Exemption up to Rs 1.5 lakhs under section 80C.
- The lock period is 3 years
- ELSS Fund interest rate is 15% - 18%.
- The returns of ELSS Funds are not fixed they may vary depending upon the market performance of the fund.
- ELSS are good for tax-effective returns.
- ELSS offers liquidity and flexibility this is the best scheme for the people who have a high risk of appetite.
- ELSS are better for long term period investments as they offer higher returns and tax exemptions.
- Investor can track their investment online in ELSS Mutual Fund Schemes.
National Pension Scheme (NPS)
- NPS offers tax exemption up to Rs 1.5 Lakh under section 80C of the IT Act.
- Rs 50,000 additional deduction can be obtained under section 80CCD (1b).
- If the employee contributes 10% of their salary to NPS, the amount will not be taxed.
- Investors cannot withdraw the amount before retirement.
- To get monthly income, the investor must invest 40% in the annuity plan.
- NPS offers to select either Auto or Active choices of distribution.
- The minimum investment can be done in NPS starting from Rs 1000/- and can grow reasonably.
Unit Linked Insurance Plan (ULIP)
- ULIP offers tax exemptions and higher returns on long-term investments.
- The lock period is about 5 years
- This offers flexibility and ease for the investor.
Check ULIP Past Performance
| Fund Name | Fund Type | Fund Value (Cr) | 3yrs | 5yrs | 7yrs |
|---|---|---|---|---|---|
| Debt Fund | Moderate | 130 | 8.4 | 8.43 | 9.43 |
| Secure Fund | Low Risk | 33 | 3.28 | 4.57 | 6.65 |
| Blue Chip Equity Fund | High Risk | 122 | 2.59 | 6.78 | 5.7 |
| Stable Fund | Moderate | 20 | 5.21 | 7.98 | 9.05 |
| Accelerator Fund | High Risk | 194 | 5.18 | 8.36 | 10.61 |
| Opportunity Fund | High Risk | 93 | 2.55 | N.A | N.A |
Public Provident Fund (PPF)
- PPF is a long-term tax saving scheme.
- On a quarterly basis, the interest rates will be reset for PPF.
- PPF offers tax exemption on interest earned and on maturity.
- The maturity period is 15 years and can be added 5 years further.
- A maximum of 1.5lakh tax exemption can be obtained under section 80C.
- PPF is the safest savings scheme as this is operated by government banks.
Comparison of ULIP/Tax Saving MF/Tax Saving FD:
| Features | ULIP’S | Tax Saving MF | Tax Saving FD |
|---|---|---|---|
| Tax Savings on Premium | ✅ | ✅ | ✅ |
| Tax Savings on Returns | ✅ | ✗ | ✗ |
| Long term capital gains | No - Tax | 10% Tax | Fully Taxable |
| Life Cover | ✅ | ✗ | ✗ |
| Historical Returns | 12% - 18% | 12% - 18% | 5%-6% |
Sukanya Samriddhi Yojana
- This is a saving scheme for girl child under the plan of Beti Bachao Beti Padhavo Campaign.
- This plan offers an interest rate of 8.1% and offers tax exemption.
- The tax exemption is up to 1.5 lakh under section 80C of the IT Act.
- The Sukanya Samridhi can be operated on from the birth of the girl child till 10 years.
- The scheme remains operative for 21 years from the date of opening of the account.
- Earlier the minimum investment in this scheme was Rs 1000/- but now it is Rs 250/-.
- This scheme is best for the girl child ensuring the future.
National Savings Certificate (NSC)
This is a government-operated scheme, investor can operate this at any post office. As it is under government, it offers good security. Tax deduction up to Rs 1.5 lakh under section 80C of IT Act. Investors can ask for tax deduction for the interest gained on the present also on the previous year of investment.
Senior Citizen Saving Scheme (SCSS)
- SCSS is a government-backed investment scheme specially for senior citizens.
- Investors above the age of 60 years are eligible to invest in this scheme.
- In SCSS Scheme an individual can invest a minimum of Rs 1000/-
- The joint holder can invest a maximum of Rs 1.5 lakh.
- The single holder can invest up to Rs 9 lakh
- The cost of investment is very flexible in SCSS.
- The Lock period is 5 years.
- Interest is payable on a quarterly basis.
- The interest rates offered in SCSS is about 8.7% per annum.
The public back sectors that offer SCSS account are -
- Andhra Bank
- Allahabad Bank
- SBI
- Bank of Maharashtra
- Bank of Baroda
- Bank of India
- Canara Bank
- Central Bank of India
- Corporation Bank
- Dena Bank
- Union Bank of India
- UCO Bank
- Syndicate Bank
- IDBI Bank
- Vijaya Bank
- Indian Bank
- Punjab National Bank
- IOB Bank
- United Bank of India
Bank Fixed Deposit Schemes
- This scheme investing tenure is of 5 years
- It offers tax-free income.
- This is the best scheme for a long-term investment with low risk.
- It does not allow premature withdrawals.
- Tax exemptions are up to Rs 1.5 lakh under section 80C of the IT Act.
Insurance
- It is a tax saving investment product that also offers insurance.
- One can claim tax exemption up to a maximum of Rs 1.5 lakh.
- It uses full for investing money also availing tax-free money after maturity.
Other Tax Saving Investments beyond Section 80C
- There are much other tax saving investment options which helps you secure the money by saving tax.
- An individual can gain tax benefits on premiums paid on health insurance and home loan interest.
- An individual can claim tax deduction up to Rs 50,000/- on home loan interest under section 80EE on Income Tax Act.
Tips for Tax Saving Investment to benefit more
- The best time to plan the tax-saving investment is at the beginning of the financial year.
- This investment gets multiplied over a long-term period.
- Depending upon the goal and risk select the tax-saving plans.
FAQs:
What is the best tax-saving investment options?
- Sukanya Samriddhi Account
- Public Provident Fund (PPF)
- Senior Citizen Saving Scheme
- National Pension Scheme (NPS)
- Employee's Provident Fund (EPF)
How to reduce tax legally?
By investing in government-approved tax-free investment plans.