You might be investing in various investment avenues with an aim to earn high return that helps build wealth and fulfil your financial goals.
When it comes to investing, it’s better to choose tax saving investments that help reduce your tax liability along with high returns.
Top Tax Saving Investments
Public Provident Fund
Public Provident Fund (PPF) investment is one of the top-known tax saving instruments that help you earn interest every year. The amount you invest in PPF during a financial year is eligible for tax deduction under section 80C of the Income Tax Act, 1961. The interest that accrues in the account is also tax-free.
It requires investing for 15-years period and during this investment period, your money grows on the basis of interest rate. The current rate of interest on PPF is 7.1% per annum.
National Savings Certificate
National Savings Certificate (NSC) is a tax saving investment option. The annual investment amount up to Rs 1.5 lakh qualifies for tax savings under section 80C. The interest you earn during the first four years also count towards deduction available in 80C investments.
Investment in NSC comes with a 5-years tenure. It offers guaranteed returns based on a fixed interest rate. The current rate of interest on NSC is 6.8% per annum.
Sukanya Samriddhi Yojana
Investing in Sukanya Samriddhi Yojana (SSY) offers significant tax benefits. Investments done in this scheme up to a maximum of Rs 1.5 lakh is applicable for deductions under section 80C. The interest amount accrue in the account is exempt from tax. The maturity amount is also tax-free.
Sukanya Samriddhi Yojana helps meet financial needs such as education and marriage expenses for your girl child. The tenure of SSY is 21 years from the date of account opening and its rate of interest is 7.6% per annum.
National Pension Scheme
National Pension Scheme (NPS) is a tax saving investment scheme which ensures regular pension after your retirement. The investments under NPS qualify for tax benefits under section 80CCD(1). An additional tax deduction of Rs. 50,000 is available for tier-I contribution under section 80CCD(1B). Under section 80CCD(2), tax deduction is applicable up to 14% of employer’s contribution for central govt. employees and 10% for other employees.
Senior Citizens’ Savings Scheme
Senior Citizens’ Savings Scheme (scss) is a tax saving investment scheme which ensures high returns on investment along with safety of capital amount. The amount you deposit in this scheme is eligible to avail tax savings under section 80C.
SCSS has a tenure of 5 years (extendable to another 3 years). Its current rate of interest is 7.4% per annum.
Buying life insurance ensures financial security for your family and pays a lumpsum amount (equal to life cover) to the beneficiary in case of your death. It helps meet financial needs of the family & loved ones in your absence.
By investing in life insurance, your annual premium amount is eligible for tax deduction up to Rs. 1.5 lakh under section 80C. The maturity amount or policy proceeds are also eligible for deduction under section 10(10D) of IT Act.
Buying health insurance covers medical costs that incur due to the hospitalization expenses. The annual premium towards health insurance qualifies for tax deduction under section 80D of the Income Tax Act.
The premium paid for self & family (below 60 years) can avail deduction of up to Rs. 25,000. For above 60 years, the tax deduction is available up to Rs. 50,000.
ELSS Mutual Funds
Equity Linked Savings Scheme (ELSS) mutual funds help you save tax up Rs. 46,800 under section 80C. Under this, you need to invest for at least 3 years. ELSS investment offers high returns and helps achieve your financial goals.
5-Year Fixed Deposit
A 5-year bank/ post office fixed deposit comes with a lock-in period of 5 years. Upon investing in a fixed deposit for 5 years, you are eligible to avail deduction under section 80C of the IT Act. With the fixed interest rate, you can earn guaranteed returns on your investment.
In the Nutshell
Paying tax is an obligation for every citizen of the country and everyone should pay it on-time. When it comes to planning taxes, there are certain investments such as PPF, NPS, ELSS, Life & Health Insurance that help reduce your taxable amount. Apart from saving tax, these investments also help gain high returns and meet your financial obligations.