Best Tax Savings Investments

Best Tax Savings Investments

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Invest in various 80C investments and Save up to INR 150,000 p.a. in taxes.

TLDR Points

  • Tax-saving is beneficial if you start early in a financial year.
  • There are several investment options which help reduce your tax liability considerably.
  • Some investments offer a complete exemption on your principal and interest components.
  • These options come with different lock-in duration, better interest rates, and other benefits.

Introduction

Next to being shot at and missed, nothing is quite as satisfying as an income tax refund.” – F.J. Raymond

Reducing your taxable income can bring as much joy as getting a salary increment, yet it doesn’t have to be few and far between. Informed decisions on tax-saving investments in India are crucial instead of making hasty decisions.

We read or hear about sales and discounted options for gadgets, clothing, and other lifestyle products. Although our television channels, newspapers, and social media present us with eye-catching advertisements that explain why one product is better than the other, we tend to gravitate towards informed decisions as educated professionals. Why not do the same to save taxes?

Here is the list of tax saving schemes you can consider:

ELSS (Equity Linked Saving Scheme)

ELSS is an excellent tax-saving investment if you are looking for a tax-saving instrument that also provides substantial returns. These come with a lock-in period of three years, and returns and dividends are taxable. 

Are you worried about the risks involved? You can choose to make systematic payments each month via the SIP (Systematic Investment Plan) route. With an SIP, you can invest smaller amounts to mitigate market volatility risks as much as possible. Moreover, you can carefully select funds that have an excellent credit rating to minimize credit risk. An ELSS gives your portfolio the diversification it needs, and it is the equity-oriented investment that gives you tax benefits under Section 80C of the Income Tax Act of India. If you start an ELSS online or through mobile banking, tracking it becomes easier.

PPF (Public Provident Fund)

You can open a PPF account with most major banks and post offices. However, they have a higher lock-in period of 15 years. Before you raise concerns over the long lock-in period, consider the next point. PPF comes with a government guarantee, where the interest rates are reviewed and fixed by the government. The current interest rate on PPF has been fixed at 7.1%* for Financial Year 2020-21. PPF investments come under Exempt-Exempt-Exempt (EEE) category of Section 80C, which means that apart from the principal (up to Rs. 1.5 lakh a year), the interest and maturity values are also tax-free. 

NPS (National Pension System)

Investment options that come with multiple choices have their benefits. NPS offers just that: a combination of equity and fixed income. One can start with an investment as low as Rs. 1000 and watch it grow. Withdrawals before retirement are not entertained in general. The NPS account matures at the age of 60, and you can withdraw 60% of the accumulated tax-free. NPS also falls under tax-saving investments of Section 80C.

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Tax Saving FDs (Fixed Deposits)

If you are looking for guaranteed income tax saving options under Section 80C, your search ends here. Tax saving schemes like such FDs are popular as many major banks, and post offices offer fixed deposit options. These are your reliable go-to options. The return rates vary from 6% to 7.25%. The interest on bank FDs is taxable. These deposits have a lock-in period of five years, and you cannot take loans against them.

Health Insurance

Invest in getting coverage for your health and save taxes too. Any premium paid for health insurance coverage for you, your spouse, and dependent children, is exempt up to Rs. 25,000 under Section 80D of the Income Tax Act of India. You can ensure your family’s health and reduce your taxable income simultaneously.

Conclusion

The investment choices are personal because they depend on several individual factors, such as cash availability, need for premature withdrawals, age, low-risk, and high-risk margins, play a huge role. Moreover, you can rest assured that an investment option is tailored to your specific needs to save taxes in whichever life-stage you are.

The smarter approach is to keep away the ‘let’s do it later’ string of thoughts and begin investing. The first step is to start with tax-saving investments which also create wealth for you over time. As Mark Twain stated, “Progressive improvement beats delayed perfection”.

Download digibank by DBS on your smartphone, register and choose any tax-saving options from the menu.

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