How to save tax? This is one of the questions that bothers almost every investor. Every year thousands of tax payers find out tax saving investments at the end moment in order to save on tax. This could result in choosing investment options that do not align with the portfolio of the investor. Let’s look at some of the best tax-saving investments:
- Equity-Linked Saving Schemes (ELSS) – ELSS funds invest a majority of their corpus in equity and equity-related instruments. Thus, ELSS tax saving mutual funds offer the dual benefit of tax saving and higher returns. These funds have the lowest lock-in period of just 3 years among all the other tax-saving investments. ELSS tax saving funds are eligible for ELSS tax-exemption of up to Rs1.5 lakh u/s 80C. An investor can save up to Rs46,800 by investing in ELSS tax-saving
- Unit-Linked Insurance Plan (ULIP)–It is a combination of investment plus insurance. ULIPs are insurance policies that provide an individual with the potential of wealth creation while simultaneously providing them with the security of a life cover. Under the ULIP scheme, a part of the premium goes towards life cover and the rest is assigned to a common pool of money, called a fund, just like a mutual fund, that invests in debt or equity or a combination of both. These schemes have a lock-in tenure of 5 years. The premium paid towards ULIPs are eligible for deduction u/s 80C for up to Rs1.5 lakh p.a.
- Senior Citizen Savings Scheme (SCSS) – It is a government-sponsored savings scheme accessible to Indian residents who are above the age of 60 years. The maturity of this savings scheme is 5 years, although it can be extended by 3 years. The interest rate on SCSS is declared at the time of purchasing the scheme.SCSS offers the highest interest rates as compared to different savings investments available in India. SCSS schemes also offer tax benefits of up to Rs1.5 lakh under Section 80C of the Income Tax Act, 1961.
- Public Provident Fund (PPF) – It is a tax-saving investment scheme offered by the Government that offers a fixed rate of interest and returns on the investment amount. The interest rate on PPF is revised and paid by the Government every quarter. It is one of the most popular long-term investment options due to its combination of safety, returns and tax-saving attributes to its investors. These securities have a maturity period of 15 years. PPF accounts fall under the EEE (Exempt-Exempt-Exempt) category in which the principal amount, interest earned, and the maturity amount is exempt from tax. The amount deposited during a year can be claimed under the overall limit of 80C deductions.
However, one should not invest just for availing the tax-saving benefits. Investments do not follow the concept of one size, fit all. Hence, an investor should choose an investment option that best suits their financial profile. Their investment havens should align with their financial goals, investment horizon, risk appetite, and other parameters. Happy investing!