Tax saving or planning our investment is a critical question that bothers us. In the times of pandemic when the entire country was in lockdown, the CBDT (Central Board Of Direct Tax) has given a 1month extended period for tax payment. Tax saving and Tax planning both are very important. We can save tax and earn from Tax Saving Investment Plans in India.
Due to a lack of knowledge and little hassle, we could not choose the best scheme suited to save tax. This article will look for the best Tax Saving Investment Plans. You can always compare and choose the best-suited tax investment plan.
We have given more than 15 Tax Saving Investment Plans divided on the basis of some parameters such as risk, flexibility, liquidity transparency, etc.
1. Unit Linked Insurance Plan
ULIP is one of the important investment plans in India. This plan ensures that one’s family is financially stable in the events like the sudden death of a close one. ULIP has returned between 9-14%.
By purchasing this insurance policy, taxpayers can take the benefit under the income tax act. Under section 80C, the premium paid after the purchase of the insurance policy qualifies for the deduction of up to 1.5 lakh, not only this but also income on the maturity of this policy is tax-free. If the money goes to the nominee of the person, In this case, the same remains as a tax exemption in the hands of the nominee.
2. ELSS Mutual Funds
The equity-linked saving scheme is a mutual fund investment plan with a lock-in period of 3 years. Which is the shortest among all available investment plans. ELSS mutual funds, invest a large percentage of their portfolio in Equity. ELSS has returned approximately 16.5%.
Investment in ELSS mutual fund qualifies for tax deduction under section 80C of the Income Tax act up to Rs 1.5 Lakh. There are two options available for investment, Lumpsum investment and systematic investment plan (SIP). Both qualify for tax deductions.
These mutual funds are equity-oriented, and they invest a minimum of 60% of their portfolio in equity and equity-linked instruments. That’s why investing a large amount in one go can be risky. Taxpayers who are willing to take some risk and want to claim up to 1.5 Lakh of tax deduction should go for ELSS mutual funds.
3. Public Provident Fund
This is more attractive among the investors as it’s a long-period investment and safe yet flexible. An investor can claim for tax deduction under section 80C of income tax. A taxpayer can claim up to Rs. 1.5 Lakh. PPF has an interest rate of around 7%.
Even though the interest rate is low, its tax-free nature makes it more attractive to the investor. It is an investment where no one can ever go wrong. Just open a simple account with the Post office of any PSU Bank and are ready to invest.
4. Sukanya Samridhi Yojana
Sukanya Samriddhi Yojana was launched in 2015 by the government of India as a part of the Beti Bachao Beti Padhao campaign. For taxpayers with a daughter below 10 years, the Sukanya Samriddhi Yojana is a good way to save. Sukanya Samridhi Yojana has an interest rate of around 7.4%.
A taxpayer can invest regular deposits and earn interest on it. Investing in this also qualifies for deduction under section 80C of the income tax act. Just like PPF, an account can be opened in any post office or any bank with the name of the child with a minimum investment of RS. 1000.
Indian government decides the rate of interest quarterly which is payable on maturity. This scheme comes with a maturity period of 21 years. Parents have to pay a minimum of Rs 250 per year for 15 years. Parents can open an account under this scheme for only two daughters. But the combined investment can not exceed Rs. 1.5 Lakh in a year.
5. National Saving Certificate
This scheme used to be one of the famous saving schemes but now due to the declining interest rate, this is least considered for investments. NSC is now offering lower than the bank interest rate. This scheme targets, small and middle-income investors to invest and earn good amount returns. National Saving Certificate has an interest rate of around 6.5%.
Apart from tax deduction under section 80C, this investment scheme also provides for full capital protection and guaranteed interest. There is a short lock-in period of 5 years.
6. Tax-savings fixed deposit
FDs are considered one of the safest Tax Saving Investment Plans. Its interest rates are dependent on various factors. FD interest rates are not liable to change as per the equity market so they are safer with a guaranteed return. FDs have an interest rate of around 5 to 6 %.
The minimum lock-in period is 5 years and senior citizens can get a higher interest rate. Investment in these FDs can avail tax deduction under section 80c while calculating taxable income.
7. Senior Citizen Savings Scheme
A Senior Citizen Savings Scheme is an income Tax Saving Investment Plans available to senior citizens who are residents in India. The scheme is available for investment through banks and post offices and offers one of the highest rates among the various savings schemes. An account can be opened in a Post Office or at designated branches of banks with a minimum investment of Rs 1000. The Senior Citizen Saving scheme has an interest rate of around 7.4 %
The Lock-in period for this scheme is 5 years but investors can further extend this to 3 years. This investment comes with three conditions
- An investor should be over 60 years.
- An investor should be an Indian Resident.
- Rs. 15 lakh overall investment limit per individual.
These are the 7 best tax-saving investment plans. I hope this article has added some value to your investments. Make investment decisions wisely and consult your advisor before investing.
A taxpayer can invest in multiple Tax Saving Investment Plans as there is no limit to it, but there is a limit of deduction under which one can claim the tax benefits. For more information, one must refer to different sections of the income tax act
The fact there are various financial plans that suits your need and wants. So your financial plan changes what you need in every stage of life. So whether you are newly employed, still trying to figure out your financial plan, or happily retired, recheck your investment portfolio for better Tax Saving Investment Plans.
What do you mean by “ deduction under section 80C of the income tax act”?
The income tax department allows for a tax deduction if the taxpayer makes certain investments or expenditures under this section. 80C allows for a deduction for the investment made in PPF, EPF, LIC premium, and many more. For detailed information on investment under section 80C, refer to the income-tax department website.
What are the ways to save tax other than 80C?
Other than 80C, there are various other provision that allows Taxpayer to save the tax. Those are 80D, 80EE, section 24, section 80EEB, Section 54. Donation to various charitable trusts also qualifies for an exemption under Section 80G.
What are the different types of donations which will save my tax?
There are 3 types of donation.
2- Towards political party
3- Towards scientific research.
Each one has different deduction rules. These rules keep changing as per income tax department rules. So before investing recheck the details of the section associated with it.