Income tax can eat a chunk of your annual income if appropriate steps are not taken. You can save on taxes by placing your money in tax-saving investments. Reducing tax liabilities can lead to a higher allocation of funds for investing, which leads to more returns. Many of the best tax-saving investments come in the form of government-mandated schemes and programs offered by banking institutions. An added benefit of investments that reduce lax liability is that they are low-risk in nature while still allowing for steady financial planning and wealth management. Here are some of the best tax-saving investments for financial success.
1. Equity Linked Savings Scheme
Equity Linked Savings Scheme (ELSS) is the only tax-saving mutual fund in the investment market. Additionally, it is one of the few schemes that can offer higher returns while still offering tax benefits. Since the higher rate of returns correlates to the amount of risk involved, consulting with an investment advisor may be wise. ELSS offers tax benefits via 80C of the income tax act, under which the investment amount and any returns accumulated are tax-free. Tax liability can be saved up to Rs 1,50,000, and the required investment lock-in time is three years.
2. Fixed Deposits
Fixed deposits are an extremely popular safe and secure investment option in India. The amount invested is discounted as a tax liability; however, tax must be paid on returns. The return is usually between 3.75% to 9.90% per annum. The lock-in period can range from 7 days to 10 years.
3. Public Provident Funds (PPF)
PPFs are long-term schemes in which your money must stay locked in for 15 years. The risks are low and the returns are stable, making it a suitable option to receive tax benefits. Both the initial amount invested and the returns are tax-free. PPFs are government-guaranteed schemes, making for a safe tax-saving investment.
4. Health Insurance
Health insurance can save up to Rs 25,000 of taxable income for non-senior citizens and 50,000 for senior citizens. It also provides security against possible medical expenses, which can affect an individual’s overall investment budget.
5. National Pension Scheme (NPS)
An investment in NPS can only be accessed when an individual hits 60. However, individuals investing in NPS receive tax benefits of up to Rs 1,00,000 annually. NPS is one of the best options for tax-saving investments as it provides financial security once you retire.
6. Life Insurance
Life insurance can be a strong option as a tax-saving investment. It is undoubtedly one of the top tax-saving options for salaried individuals. It protects other family members in case of an unfortunate event and offers up to Rs 1,50,000 in tax benefits.
7. Unit Linked Insurance Plan (ULIP)
ULIPs are investment cum insurance program that places part of your investment towards life insurance and the other part into investment assets. The minimum lock-in period is 5 years; however, with a ULIP, waiting for 10-15 years is better to get a higher return. ULIP assists individuals in achieving financial goals while providing tax benefits under Section 10(10D) of the Income Tax Act.
8. Tax Benefits on Education Fees
Parents can claim tax benefits on the school tuition fees of their children. Each tax-paying parent can receive this benefit for a maximum of 2 children separately. Therefore, if both parents are taxpayers, receiving tax benefits is possible for up to 4 children. The maximum tax amount deductible is Rs 1,50,000 per taxpayer.
9. National Savings Certificate (NSC)
NSC is a government bond that can be bought at a bank or post office. It is a highly safe investment option in which the government guarantees returns. The scheme is suited for small investors with a minimum investment amount of Rs 1,000 for a lock-in period of 5 years at a 7.7% interest rate per annum. Individuals can avail of up to Rs 1,50,000 deductions under Section 80C of the Income Tax Act.
10. Senior Citizens Saving Scheme (SCSS)
As the name implies, only citizens above 60 are eligible for SCSS. In 2023, the deposit amount allowed increased to Rs 30 lakh with a lock-in period of 5 years. Since it is a government scheme, receiving returns upon maturity is guaranteed. Senior citizens receive a fixed interest return every quarter throughout the year and a tax benefit of up to Rs 1,50,000 under Section 80C.
Employing the various tax-saving investments in this article that apply to you is one good way to achieve financial success. These options provide the dual benefit of offering tax benefits while providing a return on investments. Make sure you carefully analyse which schemes are most suited to you and try to avail yourself of as many as possible. If you are unsure which schemes are most beneficial to your financial position, it is best to consult an investment advisor.