Being a citizen of India, you must be well versed in the tax section that is governed and shaped by a variety of rules and regulations.
It’s tax season and everyone is in a hassle of what to do and what not to do.
Did you know that the government offers various tax-saving options that allow individuals to reduce their taxable income and save money to encourage savings and investments?
After working hard all day, who wouldn’t want to know a way that’ll make them profits and also save tax side by side? Do you want to know what are the investments to save tax available in India?
In this blog, you will explore what investments can save tax in India, highlighting their features, benefits, and limitations. By understanding these investment options, you can make informed decisions that align with your financial goals and optimize your tax liabilities.
9 Best Investments to Save Tax in India
As a working individual , you may find India’s tax system to be complex, and the burden of taxes can significantly impact your financial goals and savings prospects . In order to boost a culture of savings and investments, the government provides incentives for taxpayers to invest in specific financial instruments.
These investments not only help individuals grow their wealth but also offer tax deductions, ultimately reducing their overall tax liability.
The answer to what are the investments to save tax starts here :
- Equity-Linked Savings Schemes (ELSS):
Equity-Linked Savings Schemes (ELSS) are one of the most popular tax-saving investment options in India. These are diversified equity mutual funds with a lock-in period of three years. ELSS offers a dual benefit – potential for higher returns due to equity exposure and tax savings under Section 80C of the Income Tax Act, 1961. Investors can claim deductions of up to Rs. 1.5 lakh on their taxable income through ELSS investments.
- Public Provident Fund (PPF):
You must be aware of PPF. The Public Provident Fund (PPF) is a long-term, tax-free savings instrument offered by the government. Ask any salaried employee, and PPF will be the first answer they will give to the question of what are the investments to save tax.
The main feature of PPF is that it involves a lock-in period of 15 years, and contributions to PPF are eligible for deductions under Section 80C. Also, the earned interest and the maturity amount are declared tax-free by the government, making it an attractive tax-saving investment for risk-averse individuals.
- Employee Provident Fund (EPF):
Another answer to what are the investments to save tax is an initiative by the government of India to encourage investment is the Employee Provident Fund (EPF) . Again, it is a mandatory savings scheme for all salaried employees currently working in India .
You can understand it in an easy way .Both the employees and employers contribute a percentage of the employee’s salary to the EPF account, and the contributions are eligible for tax benefits under Section 80C. The interest earned on EPF is tax-free, making it a secure and tax-efficient investment option.
- National Pension System (NPS):
The National Pension System (NPS) is a voluntary, long-term retirement savings scheme that is a simple answer to what are the investments to save tax. It offers tax benefits on contributions up to Rs. 1.5 lakh under Section 80CCD(1) and an additional deduction of up to Rs. 50,000 under Section 80CCD(1B). NPS also allows partial withdrawals for specific purposes and provides flexibility in choosing investment options.
- Tax-Saving Fixed Deposits:
Several banks offer Tax-Saving Fixed Deposits with a lock-in period of five years. These deposits qualify for tax deductions under Section 80C, making them a conservative tax-saving investment option. However, the interest earned on these deposits is taxable, and premature withdrawal is usually not allowed.
- National Savings Certificate (NSC):
If you are looking for a safe answer to what are the investments to save tax , then NSC is for you. National Savings Certificate (NSC) is a government-backed small savings scheme with a lock-in period of five or ten years. NSC investments are eligible for deductions under Section 80C, and the interest is compounded annually but taxable. The NSC is an attractive option for risk-averse investors seeking fixed returns.
- Sukanya Samriddhi Yojana (SSY):
The Sukanya Samriddhi Yojana (SSY) is a savings scheme designed to encourage the financial security of the girl child. Parents or legal guardians can open an SSY account for girls below ten years of age. Contributions to SSY are eligible for deductions under Section 80C, and the interest earned and the maturity amount are tax-free.
- Unit-Linked Insurance Plans (ULIPs):
Another investment scheme answer to what are the investments to save tax is the Unit-Linked Insurance Plans (ULIPs).
Their specialty is that they provide life insurance coverage along with investment opportunities. A portion of the premium you submit goes towards life insurance, and the remaining amount is invested in equity, debt, or a mix of both as per the policyholder’s choice. ULIPs offer tax benefits under Section 80C on premium payments.
- Senior Citizens’ Savings Scheme (SCSS):
The Senior Citizens’ Savings Scheme (SCSS) is a specialized savings scheme for individuals above 60 years of age. SCSS is an investment for senior citizens to save tax and offers higher interest rates and tax benefits under Section 80C for contributions up to Rs. 1.5 lakh. The tenure of SCSS is five years, extendable by an additional three years.
In conclusion, India provides a diverse range of tax-saving investment options to help individuals reduce their tax liabilities while building a financially secure future. Each investment avenue has its unique features, benefits, and risks.
In this article we have discussed what are the investments to save tax in detail. It is essential for taxpayers to carefully assess their financial goals, risk tolerance, and investment horizon before making any investment decision. Moreover, seeking advice from financial experts and keeping oneself updated with changes in tax laws can ensure optimal tax savings and financial growth.
So stop worrying about what are the investments to save tax. By leveraging these tax-saving investments effectively, individuals can strike a balance between minimizing taxes and maximizing returns to secure a stable financial future. If you are looking for investments that will save your pocket and environment as well, check out SustVest.