Top 6 Tax Saving Investments
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Top 6 Tax Saving Investments in FY 2020-2021
All those opting for Old Tax Regime and are going to claim deduction under Section 80C, must be aware of the Tax Saving Investments which lowers the tax liability of an individual in a given financial year. As a diligent investor your aim should not only be towards investment in tax saving schemes but to also generate tax free returns from them.
While deciding on the suitable tax saving investment options, various factors such as the returns, liquidity and safety needs to be considered.
Let’s check out the best tax saving investment schemes available in the market
ELSS Fund (Equity Linked Saving Scheme Funds)
These funds offer the highest returns among all other tax saving instruments which is around 14-18% depending upon the performance of the fund in the market.
The investments in the ELSS funds are eligible for deduction under Section 80C of the IT Act up to Rs. 1.5Lakh and also there is a lock-in-period of 3 years which is fairly the shortest in comparison to other instruments. Investment in ELSS not only save taxes but also generates tax-free income.
- High Returns (15-18%)
- Tax Benefits
- Capital appreciation
- Shortest lock-in-period (3 years)
Suitable for: Individuals with high risk appetite looking for long term investments.
ELSS Fund Performance Tracker: Click Here
PPF (Public Provident Fund)
PPF is a popular investment scheme among those investors who are looking for long term investments with moderate returns. It is ideal for individuals with low risk appetite. Currently, the PPF offers an interest rate of 8% p.a.
PPF enjoys the EEE benefit (Exempt, exempt, exempt), which means the contribution to PPF, the interest earned and the maturity proceeds are all exempted from tax. However, the lock-in-period is 15 years which can be extended in block of 5 years.
The PPF account can be opened with any bank branch or post office. It offers ease in investment as you can start off with a minimum investment of Rs. 500 and can go upto Rs. 1.5 Lakh in a year.
- Lock-in-period of 15 years (however, partial withdrawal allowed after 7 years)
- Low Risk
- Substantial returns (upto 8%)
- Tax benefit (EEE- Exempt Exempt Exempt)
Suitable for individuals who prefer less risk and moderate returns
NPS (National Pension Scheme)
NPS is a government sponsored scheme and it offers tax benefits at 3 instances: Firstly, the contribution made towards NPS upto Rs. 1.5 Lakh is deductible under Section 80C. Secondly, one can claim additional deduction of Rs. 50,000 under Section 80CCD (1b), and Thirdly employers contribution upto 10% of the employee’s basic salary towards NPS in not taxable.
The ideation of NPS was to inculcate systemised savings during ones working years. However, withdrawals are not permissible before retirement (60 years) except in certain contingencies. Hence, the lock-in-period is quite long but the lack of liquidity is the essence of NPS as it inculcates long term savings in individuals. Interest rate is between 9-12%
- Tax benefit (deduction can be claimed upto Rs. 2 Lakh under 80C + 80CCD(1b))
- Longer lock-in-period
- Long term investment
- Substantial Returns (8-12%)
Individuals looking for regular income post retirement with moderate returns.
NPS Performance Tracker: Click Here
ULIP (Unit Linked Insurance Plan)
ULIPs are a combination of Insurance and Investment. Besides, the returns generated from investments, the investors are also provided Life Cover. The policyholder can pay the premium monthly or annually. Some portion of the premium goes for life insurance and rest is invested in market.
The premium paid is deductible under Section 80C and the returns are also exempted under Section 10(10D) of the Income Tax Act. ULIPs are long term investment with a lock-in-period of 5 years
- Regular Savings
- Life Cover
- Tax Benefits
- Moderate Returns
Suitable for: Individuals looking for investment returns and life cover in one scheme but individual who can identify and manage the ELSS schemes and holds a term insurance plan, is not required to buy ULIPs
Top Performing ULIPs: Click Here
Bank Fixed Deposit
Tax saving investment FDs have lock-in period of 5 years and offer returns upto 8%. These are the conventional and ‘no-risk’ investment options mostly opted by individuals who prefers very low risk exposure. Bank FDs offers guaranteed return on investment.
Deduction upto Rs. 1.5Lakh can be claimed in tax saving FDs. However, the interests earned on these deposits are fully taxable.
Senior Citizen Saving Scheme
This is government sponsored scheme specifically designed to provide financial security and stability to the senior citizens. Individuals over the age of 60 years can invest in this scheme. Individuals can deposit a minimum of Rs. 1,000 and can invest upto Rs. 15lakh (in case of joint holding) and Rs. 9lakh (for single holding). Investment is locked in for 5 years and the interest rate is 8-9%.
- Quarterly revision of interest rates
- Fixed income
- Lock-in-period of 5 years
- Substantial returns
- Security of capital
|Investment||Interest||Lock-in period||Risk Profile|
|ELSS||15% to 18%||3 years||Market-related risks|
|NPS||12% to 14%||Till retirement||Market-related risks|
|ULIP||Returns vary from plan to plan||5 years||Market-related risks|
5% to 7%
|Senior Citizen Saving Scheme||8.70%||5 years||Risk-free|
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