For many investors, striking the correct balance between tax benefits and favourable returns is the primary consideration. While relying solely on online investment tips to reduce taxes might not be the best course of action, certain investments can be powerful players in your tax reduction kit.
Indian investors generally go for guaranteed returns and assured income via government-backed schemes and other alternative programs. The fun part is that even if these schemes may not guarantee profits by one hundred per cent, they do serve a dual purpose, i.e., by wealth accumulation and saving on taxes. That said, let’s walk through the 10 best tax saving investments that you can opt for in India.
- Fixed Deposits (FDs)
Indians love fixed deposits! FDs are considered not just the safest but also a reliable way to invest. The interest rate is set by your bank for a minimum of a five-year lock-in period. When determining the taxable income in a joint account, the principal holder may benefit from a tax deduction. However, note that tax-saving FDs do not allow early withdrawals. Investing in a tax-saving FD a/c will allow investors to deduct up to ₹1.5 lakh from their taxes.
- Public Provident Fund (PPF)
The next option way to save taxes is through a public provident fund. PPF, a fixed return instrument, has an obligatory 15-year lock-in term. The government sets the quarterly PPF interest rate that is earned on this investment option. You can invest a lump payment or monthly investment of up to ₹1.5 lakh into a PPF account in a single fiscal year. Under Section 80C, the entire sum will be tax-free. In addition, the interest earned is also exempt from taxes.
- Equity-Linked Saving Scheme (ELSS)
The investments that you make in ELSS, also called tax-saving mutual funds, are tax-exempted for up to an aggregate of ₹1.5 lakhs. This scheme comes with a three-year lock-in period. The returns here are not fixed. They change based on market trends People who are willing to take risks would benefit most from this tax-saving investment plan.
- National Savings Certificate (NSC)
The National Savings Certificate strives to offer safe investment options to anyone concerned about stock market swings. A systematic investment policy, NSC is among the best tax-saving investments under Section 80C. Deductions on the initial investment and reinvested interest amounts of up to ₹1.5 lakh can be made. Anyone in the 18- to 60-year-old age group can open an NPS account while building up a pension corpus.
- Senior Citizen Saving Scheme (SCSS)
A tax deduction of up to ₹1.5 lakhs makes SCSS a great tax-saving option under section 80C. However, it comes with its own set of eligibility criteria. An SCSS policy allows for a maximum investment of ₹15 lakh. Since the Central Government of India sets the interest rate that must be paid on an investment amount, this scheme has a steady return on investment.
- National Pension Scheme (NPS)
Pension schemes give retirement-related financial stability to investors. Coming with a tax deduction of up to ₹1.5 lakh on the total principal amount, this plan is open to both employers and employees. Up to 10% of an employee’s salary may be invested tax-free under Section 80CCD (1). Section 80CCD (1B) allows self-employed individuals to claim an additional ₹50,000 under NPS tax advantages.
- Unit Linked Insurance Plans (ULIPs)
Unit-linked insurance plans are investment and insurance packages that provide investors with long-term capital growth and coverage. Offering death benefits, ULIPs are considered one of the best tax-saving investments in India. Under Section 80C, investors can save a maximum of ₹1.5 lakhs annually against the premium paid. Being a life insurance policy, the maturity proceeds can be tax-free. Another tax benefit offered by ULIPs is tax-free switching between funds.
- Sukanya Samriddhi Yojana (SSY)
If you have a girl child who is below 10 years of age, Sukanya Samriddhi Yojna is one of the finest ways to reduce your tax liability. The annual tax benefits from SSY are up to ₹1.5 lakhs. The rate of interest that the government offers on this sum is higher than that provided by other government-mandated schemes like the PPF. The interest for Q1 during the current financial year was 8.2%.
- Health Insurance
Under Section 80D, health insurance or mediclaim comes with tax benefits. These benefits are available on insurance premiums that can begin at ₹25,000 and go up to ₹1 lakh. You can also avail of a ₹5,000 tax benefit on preventive healthcare checks.
- Life Insurance
Premiums paid for a life insurance policy are deductible from income tax under section 80C. To qualify for this, the total amount allotted for premium payments cannot exceed ₹1.5 lakh. Under Section 10(D), typically, proceeds upon maturity/death are also exempt from taxes subject to certain terms and conditions and based on a total limit of annualised premium, which depends on the type of plan selected.
Conclusion
There are several choices available today when seeking tax-saving opportunities. However, each has its share of advantages and disadvantages. They are designed to meet the requirements of investors with different risk tolerances and ages. Although putting money into them can help you save on taxes, make sure you are aware of the policy terms and conditions.
