Tax saving is an important aspect of financial planning, and as you start getting into the higher tax slabs, it becomes important to understand this better. By proper tax planning and saving, you can reduce your income tax liability, increase your total income, and build safe reserves for your future.
The tax saving options in India promote long-term financial stability for all individuals. The Indian government also incentivises this by reducing tax on income if you make certain types of investments. If you are in the income tax slabs, you should focus on the tax saving options discussed in this article.
There are multiple sections in the Income Tax Act that come to your rescue for tax saving, and the 80c deduction list is among the widest ones. This list covers various types of investments and allows you to take deductions from them. Plan your taxes well and increase your total income. This article will help you find the best income tax saving investment options.
Best Income Tax Saving Investment Options in India
1. ELSS Funds
If you want to get the highest returns on your tax saving investments, this is where you go. Equity Linked Savings Schemes are funds that invest almost 80% of their portfolio in equity markets, and this helps investors gain significant returns and also save on taxes.
All ELSS funds have a minimum lock-in period of 3 years, and during this time, you cannot withdraw your funds, but you can surely add more whenever you want to. There are many great funds in the market, and this can prove to be the best tax saving option in the long run.
If you invest up to Rs 1.5 lakhs in ELSS funds, they can be claimed as tax exemptions, and capital gains under Rs 1 lakh are also free from any capital gains tax.
2. Public Provident Fund
If you want to save tax now and invest it in safe government schemes with long lock-ins, the public provident fund can be a good option. Under this, your investments are locked in for 15 years from the investment date, providing safe returns of 7% to 8% every year. The interest rate is defined by the government, and it is reviewed regularly to enable the best returns for investors.
You can invest a maximum of Rs 1.5 lakh in a year in your PPF account, and the tax exemption for this will also be shared under section 80c investments. It is one of the many government-regulated tax saving schemes that have fixed returns guaranteed for the investor.
3. National Pension Scheme
Private sector employees don’t get pensions or any other allowance to fund their retirement years, and that is where schemes like this come into play.
National Pension Scheme is a government-backed investment instrument aimed at making retirement easier for private sector employees. Like other tax saving options from the government, this also provides a fixed return guarantee, and the returns range between 9% and 12% per annum.
This investment scheme provides you with tax exemption up to Rs. 1.5 lakh on investments and Section 80CCD allows you to invest up to 10% of your salary annually.
4. Tax Saving Fixed Deposits
Fixed deposits are the simplest tax saving investment options available in India. You can open a fixed deposit with any scheduled bank in India for at least 5 years and avail tax exemptions.
Fixed deposit returns are lesser compared to some of the other investment options available on this list, but you can expect between 6% and 8% return on investment every year.
5. Unit Linked Insurance Plans
Unit Linked Insurance Plans are insurance and investment products that offer coverage as well as long-term capital appreciation to investors. These income tax savings options allow you to save up to Rs 1.5 lakh every year under Section 80C, and the premiums paid to these are also exempted from tax.
ULIPs are often considered the best tax saving investments in India as they provide insurance coverage in unfortunate times or death and also help you save on taxes regularly.
6. Sukanya Samriddhi Yojana
If you have a daughter less than ten years old, you can opt for Sukanya Samriddhi Yojana and save tax by investing in your daughter's bright future. The SSY scheme is among the income tax savings schemes offered by the government, and it is specifically aimed at benefiting girl children.
This investment option provides the highest returns among other government savings offerings and tax-free investments in India.
There are multiple tax saving investment options to choose from, and if you chase high returns, ELSS funds will help you a lot. If you are looking to protect your money from diseases and also save tax health insurance can be a great option. If you are a risk-averse investor, explore government schemes and start adding them to your portfolio today and also save tax parallelly.
