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A Comprehensive Guide To The 8 Best Tax Saving Investments

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We all work very hard to make money. But no matter how much money we make, the fear of losing our hard-earned money due to taxes never disappears. What if we had a tried-and-true system for identifying tax-advantaged investment opportunities? What if we could make some tax saving investments while earning attractive returns? Sounds fascinating? 

Before we start, we must understand that saving and investing are two distinct theories. You may be a wise saver, but taxes may rob you of your wealth. So, if you, like many others, want to save taxes but need help with questions such as how to invest, where to invest, and why to invest, you have come to the right place. This is a must-read for anyone looking for fantastic tax saving investments.

Top 8 Tax Saving Investments You Must Know

Public Provident Fund (PPF)

The Public Provident Fund (or PPF) is among the favored tax saving investment options that not only help to get a tax rebate under Section 80C of the Income Tax Act but also earn a guaranteed return.

All Indian citizens above 18 can open a PPF account with notified Public Sector/Private Banks or the nearest Post Office. However, NRIs and HUFs are not eligible to invest in this tax saving scheme.

Key Features of Tax saving investments: Public Provident Fund

Interest Rate7.1%
Min. investment amountRs. 500/-
Maximum investment amountRs. 1.5 Lacs in one financial year (in Lump Sum or 12 multiple investments)
Tenure15 Years
Tax RebateUp to Rs. 1.5 Lacs in a financial year
Loan FacilityAvailable only between three to six years (maximum tenure can be 36 months)
Extensions AllowedYes, for five years (Unlimited times)
Premature WithdrawalPartial withdrawal allowed after 7 years
Is Interest Tax-freeBoth PPF interest and maturity are tax free.
Premature closureAllowed only under these conditions-
Death of the subscriber Only after completing five years.
When the account holder or any member of his family suffers from any critical illness For higher education
Change in residency status           
Premature Closure Penalty1%

National Pension Scheme (NPS)

NPS is one of the market-linked tax saving investments the government introduced to promote old-age income security for all citizens. NPS was initially crafted as a replacement for the Old Pension Scheme but later opened for all Indian citizens, including residents, non-residents, and Overseas citizens falling in the age band of 18 to 70 years, to imbibe the habit of savings.

Key Features of Tax saving investments Scheme: NPS

Interest RateMarket Linked
Min. investment amountPartial withdrawal allowed for treatment of critical illness, higher education, and marriage of children subject to specific stipulations
– Maximum up to 25% of NPS contributions, not the corpus.
-The minimum contribution period must be 10 or 3 years (if joined after 60 years).
-Min gap of 5 years between two subsequent withdrawals.
-Max three times during the currency of the scheme.
Maximum investment amountNo Limit
TenureTill the subscriber reaches 60 years (Can be extended till 75 yrs.)
Tax RebateTax Benefits under Sec 80 C- Can claim up to Rs. 1.5 Lacs under Sec 80 C of the IT Act
Tax Benefits under Section 80 CCD (1B) – Additional tax benefit on investments up to Rs. 50,000/-
Tax Benefit under Sec 80 CCD (2) – Government employees can deduct up to 14% of their pay. Employees in the private sector can deduct up to 10% of their salary.  
Tax Benefits on Returns and Maturity – NPS interest and maturity are entirely tax-free as investments under this scheme fall under exempt-exempt-exempt (EEE) tax status.
Loan FacilityNot Available
Extensions AllowedUp to 75 years of age
Premature WithdrawalPartial withdrawal allowed for treatment of critical illness, higher education, and marriage of children subject to specific stipulations
– Maximum up to 25% of NPS contributions, not the corpus.
-The minimum contribution period must be 10 years or 3 years (if joined after 60 years).
-Min gap of 5 years between two subsequent withdrawals.
-Max three times during the currency of the scheme.
Is Interest Tax-freeYes (the maturity amount and the interest are both tax-free)
Premature closureAllowed after 10 years or before 3 years (in the case of a subscriber joining after 60). Subscribers can withdraw up to 20% of their corpus as a lump sum, with the remaining 80% used to purchase an annuity plan to receive a pension.  

Equity Linked Savings Scheme (ELSS)

ELSS funds are popular tax saving investments that help investors to generate wealth, get regular returns, and save taxes. These equity-oriented mutual fund schemes allow a tax exemption of up to Rs. 1.50 Lacs and come with a mandatory lock-in of 3 years.

ELSS becomes an investor’s preferred choice where most tax saving investments don’t yield tax-free returns or the investment tenure is too long. In these schemes, a minimum of 80% of investment is made in equity or equity-oriented instruments, and the funds are diversified across different themes and sectors.

Key Features of Tax saving investments Scheme: ELSS

Interest RateMarket Linked
Tax RebateRebate up to Rs. 1.50 Lacs on the invested amount under Sec 80 C
Minimum InvestmentRs. 500/-
Maximum investmentNo Limit
Loan FacilityNot Allowed
Premature WithdrawalNot Allowed (Lock-in Period: 3 years from the date of investment)
Is Interest Tax-freeIncome Up to Rs. 1 Lac in a financial year – Tax-Free
Income above Rs. 1 Lacs in a financial year- 10% LTCG (Long Term Capital Gains)
Premature ClosureNot Allowed before 3 years

Sukanya Samriddhi Yojna (SSY)

Sukanya Samriddhi Yojana (SSY), created solely for girls’, falls under the well-liked tax saving investments category. However, you can only invest in this scheme if you have a girl child under ten.

Among other tax saving investments, this scheme encourages parents to create a fund to support their daughter’s future studies and marriage expenses. In addition, this scheme allows a maximum of two girl children in one family to open an account.

Key Features of Tax saving investments Scheme: SSY

Interest Rate (April- June 23)8%
Min. investment amtRs. 250/-
Max. investment amtRs. 1.50 Lacs
TenureMaturity occurs 21 years after the account was opened or when the girl child gets married after 18.
Tax RebateUp to 1.50 Lacs under Sec 80 C 
Loan FacilityNot Allowed
Extensions AllowedNot Allowed
Premature WithdrawalWhen a girl reaches the age of 18 or completes the 10th grade, her guardians can withdraw up to 50% of the account balance in a financial year.  
Withdrawals can be made in one transaction or tranches, with a maximum of one leave per year and a 5-year limit.
Is Interest Tax-freeMaturity Benefits (invested corpus + interest earned during the tenure) are tax-exempted under EEE (exempt-exempt-exempt) status.
Premature closureAllowed after completion of 5 years (with certain restrictions)
In case of the Death of the account holder/guardian making the contributions.
In case of critical illness of the account holder, on extremely compassionate grounds

National Savings Scheme (NSC) VIII issue

NSC is among the most popular tax saving investments because it offers assured capital appreciation with a tax rebate. All individuals, including minors over ten and their parents or legal guardians, can invest in this low-risk scheme. However, this scheme does not allow HUFs, NRIs, or non-individuals to open accounts.

Interest Rate (Apr- June 23)7.7%
Min. investment amountRs. 100/-
Maximum investment amountNo Limit
Tenure5 Years
Tax RebateUp to Rs. 1.5 Lacs under Sec  80 C
Loan FacilityAllowed
Premature WithdrawalNot Allowed
Is Interest Tax-freeNo (Only the fifth year interest is taxed as the previous interests up to the fourth year are reinvested in the scheme)
Premature closureNot allowed, except- Death of the account holders (single or joint) Court order
On forfeiture if the Pledgee is a Gazette Officer

Tax Saving Fixed Deposits

A Tax Saving Fixed Deposit is a good option for tax saving investments if you are looking for low-risk traditional investment vehicles that offer guaranteed returns. However, while investing, remember that tax-free FDs have limited flexibility and provide no tax benefit on the interest earned.

Key Features of Tax saving investments Scheme: Tax Saver FD

Interest Rate6.20% – 7.60%
Min. investment amountRs. 1000/- (in multiples of Rs. 100/- after that)
Maximum investment amountRs. 1.50 (to take advantage under Sec 80 C)
TenureMin. 5 and Max. 10 years
Tax RebateOn Principal investment up to Rs. 1.50 Lacs
Loan FacilityNot Allowed
Premature WithdrawalNot Allowed
Is Interest Tax-freeTDS is applicable on the interest paid (Depositor can submit Form 15 G/H to claim an exemption under the Tax Laws)
Premature closureNot Allowed

Life Insurance Policies

Given the added benefit of life coverage, life insurance policies are preferred tax saving investments over vanilla tax saving options. You can claim a tax rebate even if you pay the premium for an approach taken in the name of your spouse or children. To be eligible for claiming the deduction, your premium amount should be less than 10% of the sum assured.

Key Features of Tax saving investments Scheme: Life Insurance Policies

Tax RebateUnder Sec 80 C-   Premium Paid up to Rs. 1.5 Lacs in a year (If you cancel the policy 5 years before the date of purchase, the deductions will be added to your income and taxed at the applicable slab rate.)  
Under Sec 10(10D), The maturity amount is completely tax-free.  
Under Sec 80 CCC- It provides a tax break to customers who pay insurance premiums from their taxable income towards any annuity plan.  
Under Sec 80 DD- Any person who deposits a Life insurance premium (up to Rs. 50,000/-) for the maintenance of a differently abled person is exempt from paying taxes.
Loan FacilityYes
Premature WithdrawalIt is only permitted in the case of ULIPs and unit-linked endowment plans, not in traditional life insurance policies.
Is Interest Tax-freeYes

Senior Citizens Savings Scheme (SCSS)

SCSS is among the government-supported tax saving investments focused on providing tax benefits to senior citizens and creating a regular income source.

Key Features of Tax saving investments Scheme: SCSS

Interest Rate8%
Min. investment amountRs. 1000/-
Maximum investment amountRs. 30 Lacs (in single deposit only)
Tenure5 Years
Tax RebateUp to Rs. 1.5 Lacs on the invested corpus
Loan FacilityNot Available
Extensions AllowedYes, two subsequent extensions of 3 years allowed
Premature Closure PenaltyAfter one year, a penalty of 1.5% is charged. After two years, a penalty of 1% charged
Is Interest Tax-freeNo, interest is subject to TDS. However, eligible depositors can claim exemption by submitting 15 G/H as applicable.

Wrapping it Up!

You must educate yourself on the numerous tax saving investment options available to grab the best investment opportunities before it passes you by. Unfortunately, tax savings are more challenging than they appear. We frequently begin our tax planning but get bogged down in the debate between tax savings vs equity investment.

Consider long-term investing in ELSS schemes to address such concerns over tax saving investments. Long-term investing keeps you afloat during market volatility, and the tax exemption benefit is the icing on the cake. Remember to consider equity investments if you are looking for higher returns to grow your wealth.

FAQs

Can I get a rebate each year if I choose Tax saving FD for 5 years over other tax saving investments?

No, you only get a tax break up to Rs.1.5 lacs in the initial investment year. After that, you must make a new investment under the scheme to claim the yearly tax rebate.

I retired under the VRS scheme at the age of 55. Can I invest in the SCSS scheme?

Employees who are retired under VRS or Superannuation in the age bracket of 55-60 years can also open SCSS accounts. In addition, defence employees falling in the age bracket of 50 – 60 years are also eligible under this scheme.

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