8 Best Tax Saving Investment Options

Only 3 months are remaining to end this financial year and taxpayers and now in a hurry to invest in tax-saving options. Tax saving investments can help you save on taxes and grow your income. The income tax act provides deductions for various investment options in a particular financial year. 

Below are some best investment options that can help you to grow your money with the benefit of tax planning. 

1. ELSS Mutual Funds

Equity markets are looking unstable and many analysts predict correction is bound to happen. 100% Equity comes with market risk still ELSS mutual funds are the preferred choice of investors to save the tax. ELSS mutual funds have given high returns in past years and have the shortest (3 years) lock-in among all tax saving options. 

ELSS funds have almost all the characteristics required to call them a good investment option. Some of them are the potential to give high returns, transparency, low cost, flexibility to invest, tax saver, etc.

ELSS funds are somewhat risky due to their exposure to equity which is volatile. They will get tax benefits under Sec 80C. Individuals to invest in ELSS fund as per their risk profile. Investors can consult with their financial advisor or mutual fund distributor before investing in Mutual Funds. You can either invest though SIP (Systematic Investment Plan) or lumpsum.

2. NPS (National Pension System)

The NPS is a defined contribution scheme launched by the Government of India. It is a contributory pension system where the subscriber contributes to the fund over their working life and at retirement draw the corpus so created to buy an annuity that will provide regular income in retirement.

NPS has the flexibility in investing such as to choose different Pension funds from available, contribution percentages in each asset class (E- Equity, G- Government Bonds, C- Corporate Bonds, A- Alternative investments), to choose active fund management or from available plans.

The main purpose of NPS is retirement planning & hence it has a very long lock-in period but the additional tax deduction & tax-free returns are very beneficial for high-income earners. The entire 60% of the corpus withdrawn at the time of retirement is tax-free. The scheme can help save tax under different sections. 

• Contributions of up to Rs 1.5 lakh can be claimed as a deduction under the overall Sec 80C. 
• Investor also get additional deduction of up to Rs 50,000 under Sec 80CCD(1b). 

The investor can consult with Registered Retirement Advisor or invest individually.

3. EPF (Employee Provident Fund)

Mostly all companies automatically deduct contributions for EPF from monthly salary and add Company's contribution to the same. EPF contributions get tax benefits under sec 80C. Partial Withdrawals can be done after 5 years with certain conditions. EPF returns are exempt under tax laws unless withdrawn before 5 years of service.

4. PPF (Public Provident Fund)

This is one of the popular tax-saving options that have safety, and taxability but the interest rate is low around 7%. PPF is better than fixed deposits because of its tax-free nature. Investors can open an account in the Post Office branch or designated branches of PSU banks. The investment tenure of the scheme is 15 years. On maturity, this can be extended every five years.

5. Senior Citizens’ Saving Scheme

Best way to save tax for senior citizens. What makes it more attractive is Exemption for Rs 50,000 interest. The Senior Citizens’ Saving Scheme (SCSS) is the best investment option for people above 60. An account can be opened in a Post Office or at banks. The scheme offers a higher return than the PPF. 

6. Sukanya Samriddhi Yojana

This scheme offers higher interest than the PPF, but it has limited eligibility and purpose.

The Sukanya Samriddhi Yojana is a good way to save for taxpayers with a daughter below 10 years. It gives around 7.6% interest rate, the highest among all small savings schemes. Just like the PPF, the interest earned is tax-free but there is an annual cap of Rs 1.5 lakh on the investment. Accounts can be opened in any post office or banks with a minimum investment of Rs 1,000. A parent can open an account in the name of a maximum of two daughters, but the combined investment in the two accounts cannot exceed Rs 1.5 lakh in a year & the maturity proceeds have to be used for her education and marriage.

7. NSCs

National Savings Certificates is a Government-backed ultra-safe option but dropping interest rates and taxability have led it to unpreferable for investors. These used to be some of the most popular tax-saving instruments. NSCs offer very low rates that are only marginally higher than what banks are offering on their tax-saving fixed deposits. The only advantage of the NSCs is that it comes with a sovereign guarantee. The returns are also assured and there’s a short lock-in of five years. The money does not get locked up for several years. The interest earned on the NSC is also eligible for deduction under Section 80C in the following years. 

8. Life insurance policies

These continue to be the most deficient way to save taxes. You can get a tax deduction under 80C but it is mostly nonpreferred for flexibility and returns. Life insurance is not to be seen as an investment. We can save tax with insurance policies but this purpose is best accomplished through a pure protection term plan. Term plans will benefit the nominee, your loved ones after the death of the actual investor.