Tax Saving Investment Options In India Choose The Best And Beyond
Best Tax Saving Investment Options In India
Updated on: 6 Mar 2024
Published on: 22 Aug 2023
To save on taxes, you can explore various tax saving investments. These avenues can offer deductions under the Income Tax Act of 1961. You can choose from several schemes under the following sections:
10D
80C
80D
80CCD (1B)
24(b)
80TTA/ 80TTB
To know more about these tax saving instruments, read on.
Top 5 Investments for Tax Savings in India
Here are some tax saving investments you can rely on:
Unit-Linked Insurance Plans (ULIPs)
These plans allow you to get exemptions of up to ₹1.5 lakhs under Sections 80D and 80C
ULIPs have a lock-in period of 5 years
Withdrawing or getting maturity amounts is also free from taxes
ULIPs offer you the probability of earning good returns by investing your corpus across debt and equity
You can also reduce your exposure to risk by allowing you to choose between fixed-income and equity funds
You can also take advantage of riders related to critical illness and accidents
Also Read Tax-Free Allowances
National Savings Certificate (NSC)
NSC is beneficial for debt investments with tax benefits
This scheme is considered to be the best for small-income as well as mid-income investors
This bond investment also allows you to save up to ₹1.5 lakhs of income tax under Section 80C, while offering a fixed-income return
The current interest rate for NSC is 7.7% per annum
You can start investing with ₹1,000 and for a fixed duration of 5 years
Tax-Saving Fixed Deposit
These are a popular choice for risk-averse investors because they are not influenced by market conditions
You can enjoy deductions of up to ₹1.5 lakhs under Section 80C
The investment horizon is fixed for a 5-year period, just like NSC
The rate of interest on these FDs ranges between 5.5% – 7.75% p.a. depending on the institutions
Most FD issuers also offer higher rates to senior citizens
These are investments with maximum exposure toward equity-based securities
These have a lock-in of 3 years
You can invest a lump sum amount or through a systematic investment plan (SIP) in an ELSS fund
You can claim exemptions of up to ₹1.5 lakhs on your taxable income u/s 80C
The returns on this scheme are market-linked and can fluctuate regularly
You also have the option to earn high returns in comparison to fixed-income options
Public Provident Fund (PPF)
This is a government-backed small savings scheme to help you save tax
It is a debt scheme with a tenure of 15 years
You earn fixed returns and the government revises the rates every quarter
It allows you to claim tax deductions of up to ₹1.5 lakhs in a financial year
The interest that you earn on your PPF investment is entirely free from taxation
Comparison of Various Tax Saving Instruments
Check out this table for a quick comparison of various tax-saving investments:
Instrument
Lock-in/Maturity Period
Tax Exemption
Return on Investment
Unit-Linked Insurance Plans (ULIPs)
5 years
₹1.5 lakhs on principal and premium
Fixed (depends upon the interest set by the government)
National Savings Certificate (NSC)
5 years
₹1.5 lakhs on principal
Fixed (depends upon the interest set by the government)
Tax-Saving Fixed Deposits
5 years
₹1.5 lakhs on principal
Fixed (depends upon the interest set by the concerned financial institution)
Equity-linked Savings Scheme (ELSS)
3 years
₹1.5 lakhs on principal
Depends on the market
Public Provident Fund (PPF)
15 years
₹1.5 lakhs on principal
Fixed (depends upon the interest set by the government)
Want to upgrade your lifestyle but have funds tied up in tax saving investments? Think before you withdraw from such schemes. After all, your future is as important as your present.
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FAQs on Tax-Saving Investment Options
Where to invest for tax savings?
You have multiple options if you wish to park your funds in tax saving investments. These include:
NPS
Tax-Saving FDs
NSC
ELSS
PPF
ULIPs
How to save taxes in India?
Investing in tax-saving options allows you to avail of tax deductions under:
80C
80D
80CCD (1B)
24(b)
80TTA/ 80TTB
10 (10D)
How much investment is needed to save tax?
The minimum investment depends on the scheme you choose. For instance, you need to invest at least ₹500 in NPS and PPF.
How can I save 100% income tax?
Here is how you can save cent percent of your tax liabilities:
If your earnings are up to ₹2.5 lakhs or ₹3 lakhs a year, you do not have to pay any tax under the old and new tax regimes, respectively
You can also get a tax rebate if your annual income is up to ₹5 lakhs or ₹7 lakhs under old and new tax regimes, respectively
You can use the standard deduction as well as deductions under 80C, 80CCD, 80D and 24(b) to save 100% on taxes if your income is higher
What is an 80D tax-saving plan?
You can claim deductions u/s 80D of the IT Act on:
Medical bill payments
Payment of health insurance premiums
Here are the maximum deductions:
Up to ₹25,000 paid for spouse, dependent children, self or parents
Up to ₹50,000 if family or parents are senior citizens
