21 Best Tax-Saving Investments in India in April 2023
Tax saving investments are various investment options that taxpayers can use to save taxes and maximise their income in order to secure their financial future. Under the old regime of the Income Tax Act of 1961, there are several tax deductions available for paying insurance premiums, children’s tuition and various expenditures as well as for investments like EPF, PPF, NPS, tax-saving FDs, etc.
This blog will take you through several of the best tax-saving investments that can help you save on taxes. Let’s begin!
What are the Best Tax Saving Investments 2023?
Schemes Under Section 80C
- Equity Linked Savings Schemes (ELSS)
- Public Provident Funds (PPF)
- Unit Linked Insurance Plans (ULIP)
- Sukanya Samriddhi Yojana (SSY)
- Senior Citizen Savings Scheme (SCSS)
- National Pension System (NPS)
- National Savings Certificates (NSC)
- 5-Year Bank Fixed Deposit (FD)
- Employee Provident Fund(EPF)
Other Tax Saving Investments Beyond Section 80C
- Section 80D
- Section 80E
- Section 80EEE
- Section 80EEA
- Section 80G
- Section 80GGA
- Section 24
- National Pension System (NPS) 80CCD
- Section 80GG
- Section 80TTA
- Section 80DD
- Section DDB
Best Tax-Saving Investments in India 2023
1. Equity Linked Savings Scheme (ELSS)
ELSS is a type of mutual fund that allows you to claim an income tax deduction, by investing in this tax-saving scheme you can save up to 1.5 lakhs in taxes per year.
- Returns: Depends on the scheme’s performance
- Risk: Moderate to very high
- Lock-In Period: 3 years
- Tax Deduction Benefit: Up to Rs.1.5 lakh in an FY under Section 80C of the I-T Act
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2. Public Provident Fund (PPF)
The Public Provident Fund (PPF) scheme is a long-term tax-saving instrument that provides an attractive rate of return on investment. The interest and returns are not taxable under the Income Tax Act. Under this scheme, one must open a PPF account, and the amount deposited during the year is deductible under Section 80C.
- Returns: 7.1% p.a. (for Oct 1, 2021 – Dec 31, 2021, revised quarterly)
- Risk: Extremely low-risk as it enjoys a sovereign guarantee
- Lock-In Period: 15 years
- Tax Deduction Benefit: Up to Rs.1.5 lakh in an FY under section 80C of the I-T Act
3. Unit Linked Insurance Plans (ULIP)
Unit Linked Investment Plans (ULIPs) are best suited for individuals with long-term financial planning because they provide both investment and insurance in bonds and equities. It has a regular premium payment option and fulfils the goal of life insurance as well as wealth creation.
- Returns: Depends on the plan’s performance
- Risk: Moderate to very high
- Lock-In Period: 5 years
- Tax Deduction Benefit: Up to Rs.1.5 lakh in an FY under Section 80C of the I-T Act
4. Sukanya Samriddhi Yojana (SSY)
The Sukanya Samriddhi Yojana is a government savings scheme designed to benefit girl child as part of the “Beti Bachao – Beti Padhao” initiative. This scheme allows the parent or guardian of a girl child aged 10 or younger to open an account. This scheme has a higher interest rate as well as several tax advantages.
- Returns: 7.60% p.a. (for Oct 1, 2021 – Dec 31, 2021, revised quarterly)
- Risk: Extremely low-risk as it enjoys a sovereign guarantee
- Lock-in Period: 21 years
- Tax Deduction Benefit: Up to Rs.1.5 lakh in an FY under Section 80C of the I-T Act
5. Senior Citizen Savings Scheme (SCSS)
SCSS, or Senior Citizen Savings Scheme, is a government-sponsored savings plan for people over the age of 60. The Government of India launched this scheme in 2004 with the goal of providing senior citizens with a consistent and secure source of income during their post-retirement years.
- Returns: 7.40% p.a. (for Oct 1, 2021 – Dec 31, 2021, revised and paid quarterly)
- Risk: Extremely low-risk as it enjoys a sovereign guarantee
- Lock-in Period: 5 years
- Tax Deduction Benefit: Up to Rs.1.5 lakh in an FY under Section 80C of the I-T Act
6. National Pension Scheme (NPS)
The National Pension Scheme is a Central Government social security initiative. Except for members of the armed forces, this pension programme is open to employees from the public, private, and even unorganised sectors. The programme encourages employees to invest in a pension account at regular intervals throughout their employment. After retirement, subscribers can withdraw a portion of the corpus.
- Returns: Depends on the performance of the schemes
- Risk: Low to high
- Lock-In Period: Till retirement
- Tax-Deduction Benefit: Up to Rs.1.5 lakh in a FY under Section 80C of the I-T Act, and an additional Rs.50,000 (Tier 1 account) under subsection 80CCD (1B)
7. National Savings Certificates (NSC)
The National Savings Certificate is a fixed income investment scheme offered by the Government of India that can be opened at any post office. It is a savings bond scheme that encourages subscribers to invest while saving income tax under Section 80C.
- Returns: 6.8% p.a. (for Oct 1, 2021 – Dec 31, 2021, revised quarterly)
- Risk: Extremely low risk
- Lock-In Period: 5 years
- Tax Deduction Benefit: Up to Rs.1.5 lakh in an FY under Section 80C of the I-T Act
8. 5-Year Bank Fixed Deposit (FD)
A 5-year term deposit is also known as a Tax-Saving FD. If you invest in one, you are eligible for tax breaks under Section 80C of the Income Tax Act of 1961. You can claim up to Rs. 1.5 lakh.
- Returns: 2.75%-7% p.a., depending on the bank
- Risk: Low risk
- Lock-in Period: 5 years
- Tax Deduction Benefit: Up to Rs.1.5 lakh in an FY under Section 80C of the I-T Act
9. Employee provident Fund(EPF)
The Employees’ Provident Fund, or EPF, is a popular savings scheme established by the EPFO and overseen by the Government of India. The savings scheme is aimed at the salaried class in order to encourage them to save money in order to build a substantial retirement corpus.
- Returns: 5.5%-7.75%
- Risk: Low risk
- Lock-In Period: 5 years
- Tax Deduction Benefits: the maturity amount is tax-free after completing five years of locking period under Section 80 C of Income Tax Act.
Also Read
Other Tax Saving Investments beyond Section 80C
Alongside deductions under section 80C, there are several deductions that taxpayers can use to save on income tax, such as:
1. Section 80D
Premiums paid for medical insurance policies can be claimed as a deduction up to Rs. 25,000 for self and family. Moreover, if the same is availed for senior citizens, one can claim up to Rs. 1 lakh per annum as a tax deduction.
2. Section 80E
An individual can claim the interest paid on an education loan as a deduction under section 80E.
3. Section 80EE
This section allows deduction of up to Rs. 50,000 on taxpayers’ home loan interest that is over and above the limit of Section 24, subject to terms and conditions.
4. Section 80EEA
Introduced in the 2019 Budget, it allows eligible buyers of new houses under the affordable housing schemes to claim tax deduction benefits of up to Rs. 1.5 lakh per financial year against home loan interest payments, subject to terms and conditions.
5. Section 80G
A donation made by an individual to certain relief funds or charitable institutions can be claimed as a tax deduction.
6. Section 80GGA
This section allows taxpayers to claim tax deductions against donations made towards rural development or scientific research.
7. Section 24
You can claim the interest paid on your home loan as a tax deduction of up to Rs. 2 lakh in a financial year under Section 24.
8. Section 80 GG
Like House Rent Allowance (HRA), this deduction is available for salaried individuals who live in rented houses but do not receive HRA from the employer. Under this section, one can claim a tax deduction of up to ₹60,000 if they reside in rented accommodation.
9. Section 80 TTA
All ordinary taxpayers, excluding senior citizens, can benefit from this section. The maximum deduction one can claim under this section is ₹10,000 on income earned from deposits in a bank or post office.
10. Section 80DD
If any taxpayer is looking after any disabled family member, he/she can avail a fixed tax deduction of ₹75,000 or ₹1,25,000 for partial or full disability. Disabilities that this section covers include autism, cerebral palsy, mental retardation and illnesses, hearing impairment, blindness and locomotor disability among others.
11. Section 80DDB
If a taxpayer is suffering from any disease or illness that requires expensive treatments, they can avail for tax deductions under Section 80DDB. These specific diseases include AIDS, Parkinsons, Cancer, Dementia and other neurological diseases. Taxpayers can receive a deduction of up to ₹40,000 or the amount paid for the treatment (lowest among the two).
How to Plan Tax Saver Schemes?
The ideal time to plan your tax savings schemes is the beginning of a financial year. When you plan at the start of a financial year, the investment may compound, which will allow you to achieve your long-term goals. That said, bear in mind that tax-saving should ideally be viewed as an added perk and never a financial goal in itself. Also, you’ll be well-advised to avoid taking last-minute tax-saving steps to prevent committing mistakes.
So, we suggest that you employ the following points to plan tax-saving for the upcoming financial year:
- Determine the tax-saving investments and expenses that you already have, such as home loan repayment, insurance premiums, EPF contribution, or children’s tuition fees, etc.
- Deduct this sum from the Rs. 1.5 lakh figure (which is the upper limit of deduction under section 80C) so that you know how much you should invest in tax saver schemes.
- Opt for a tax saver scheme based on your risk appetite and financial goals. Some common Investments in this regard are NPS, ELSS funds, PPF, and tax saver FDs.
Final Word
There is an array of tax saving investment options for the taxpaying citizens of India. So, if you are planning to invest in tax saver schemes, we suggest that you consider opting for the best tax saving investments discussed above. That said, it is imperative to take your financial goals and risk profile into account before investing in any of these avenues.
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FAQs
Indian citizens aged below 60 years with an annual income exceeding Rs. 2.5 lakh are liable to pay income tax under the new tax regime. Under this, individuals aged above 60 years with an income of over Rs. 3 lakh are also liable to pay this tax.
Income tax is calculated based on an individual’s applicable tax slab.
A maximum penalty of Rs. 5,000 can be levied for not filing FY2020-21 ITR by 31 December 2021.
The 80C limit is Rs.1.5 lakh.
Yes. The interest income is taxable according to the taxpayer’s applicable slab rate. However, the TDS can be avoided by submitting Form 15G (or Form 15H, for senior citizens) subject to terms and conditions.
You can invest in the following instruments to save taxes:
• NPS
• ULIPs
• Pension Plans
• Tax Saving Mutual Fund (ELSS)
• PPF
The maximum limit for tax deductions under Section 80C of the Income Tax Act is ₹1,50,000 in a financial year. Therefore for only tax-savings, one should invest a maximum of this amount in tax-saving instruments.
HRA or House Rent Allowance can help you save taxes without investing. It is part of an employee’s salary that an employer provides for rented accommodation. You can also avail tax deductions on home loan repayment, health insurance premiums, education loan repayments, children’s tuition fees, etc.
You can save up to ₹1,50,000 from your annual taxes by investing in equity-linked savings schemes (ELSS). This is provided in Section 80C of the Income Tax Act.
Public provident Fund is 100% tax-free. This is a government-sponsored savings and retirement plan that is beneficial for employees who do not have a structured pension plan.
No, the interests you earn on your Fixed Deposits are taxable. But you can opt for a five-year tax saving FD and enjoy tax exemptions under section 80C.
Any contribution to one’s Provident Fund or PF account is non-taxable. This includes both employee and employer’s contribution towards an EPF account.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
