Top tax saving investment options in India

Tax planning involves strategies that allow individuals to not only minimize their tax liability but also maximize the amount they can invest for their future objectives. As per the Indian Income Tax legislation which came into effect in the year 1961, there are certain provisions that allow individuals to lower their taxable income. Here are some of the tax-saving investment avenues sanctioned in India.

1.Fixed Deposits (FDs)

For the risk averse, FDs with a 5-year minimum lock in period are also a very attractive option. These deposits guarantee a payback of the principal amount plus interest at maturity and are eligible for a deduction of up to ₹1.5 lakhs per year under section 80C of the income tax act of 1961 FDs are best suited for persons who plan to invest for a medium term and would like guaranteed returns.

2. Health Insurance

The most pertinent among medical claim policies is that it provides protection from heavy medical expenses and premium paid in a financial year qualifies for deduction under section 80D of the Act.

• An individual insured for himself and his family members can claim deductions on premiums paid for all members, up to ₹25000, from their taxable income, if they are below 60 years of age.
• If a person above the age of 60 is insured, the cap on age has been raised to ₹50000.
• On top of this, medical insurance taken out for parents depending on their age group, you can make a different deduction for it.

3. National Savings Certificate (NSC)

National Savings Certificate is a government of India scheme primarily for the small investors and middle investors. Investment in NSC is also categorized under Section 80C up to ₹1.5 lakh a year, thereby ensuring it is a relatively low risk and easy way of saving on taxes Guaranteed benefit.

4. Pension Plans

Pension plans are taken out so that one can be self-reliant in all financial aspects at retirement age. The contribution made to such plans qualifies for tax benefit up to ₹1.5 lakhs under the section 80CCC of the Income Tax Act 1961. Such plans are good for consolidating one’s finances for the long term.

5. Unit-Linked Insurance Plans (ULIPs)

The new age insurance products are ULIPs which are a combination of insurance and investment wherein the policyholder invests in mutual funds, which are linked to the stock market, and gets life insurance.

• Amount paid for ULIPs is tax-deductible up to ₹1.5 lakhs as evidenced under Section 80C.
• Amount received at the end of the period fails to attract tax under Section 10(10D), subject to the fulfillment of certain conditions.

6. Endowment Plans

The new age insurance products are ULIPs which are a combination of insurance and investment wherein the policyholder invests in mutual funds, which are linked to the stock market, and gets life insurance. Endowment policies provide life coverage and also savings. They are mainly suitable for investors with lower risk tolerance looking for medium term goals of financing children’s education, buying homes, or traveling.

• Amount paid as premium qualifies for tax deductions under Section 80C.
• Certain conditions must be fulfilled, and then only the Benefits of survival and the benefits of death are exempt under Section 10(10D).

7. Term Insurance

This is a life insurance plan which offers financial assistance to the family of the insured in case of their untimely death.

• Payment is available against premiums which allows tax savings of up to ₹1.5 lakh in accordance with Section 80C.
• Amounts for health rider benefits are available under Section 80D.
• Withdrawal proceeds are free from taxes under Section 10(10D). Seeking for maturity proceeds is also tax free under certain conditions.

8. Tax-saving Mutual Funds (ELSS)

Mutual funds that are a type of Matching Equity Saving Scheme mainly invest into equity and other equity linked securities.

• Investment in ELSS qualifies as a tax deduction of up to ₹1.5 lakh under section 80c of the tax regulations.
• Because of a lock-in period of three years combined with ELSS, you will be required to wait before you enjoy the benefits that you can earn through tax savings and asset growth, it is best suited for those who are willing to take a moderate to high degree of risk.

Post Office Savings Schemes

Other post office savings schemes such as postal saving monthly income scheme (MIS) and post office time deposit are low risk investments but they come with tax saving merit under section 80C.

1.National Pension System (NPS)

The National Pensions Scheme is sponsored by the Central Government and allows citizens to save for retirement.

• Employee's contribution may be set off to the extent of 80% of their salary per annum as per section 80CCD(1) subject to overall cap of ₹1.5 lakh as per section 80C.
• The maximum limit of Rs. 50,000 under Section 80CCD(1B) can be availed as an additional allowance.
• Even contributions made by the employer are deductible under section 80CCD(2) but also subject to certain ceilings.

2. Public Provident Fund (PPF)

The Public Provident Fund (PPF) is a government sponsored scheme and hence is secure and has moderate level of returns for the investors.

• The maximum limit to investment in a year is ₹1.5 lakh in PPF scheme and it also allows one to claim that amount under section 80C.
• It is one of the best tax saving tools because the amount received on maturity and the interest earned is tax free.

3. Sukanya Samriddhi Yojana (SSY)

This plan is for parents who are looking to save on expenses for their daughter as she grows up therefore parents will easily be able to set up a proper corpus on her behalf.

• Donations made in the plan can be used as tax savers and will fall under section 80C.
• Those who don’t want to risk much will find the plan as a good alternative since the amount received after the maturity period is tax free.

In general, you can manage your fare outgo against various goals if you mix those options wisely. Always ensure that you assess your risk appetite and the horizon before investing.