Last Updated on 25/12/2023 by Deepak Singla
Saving taxes is one of the trickiest undertakings for any earning individual as with the rising prices of commodities and increasing inflation it has become imperative for the salary men and businessmen alike to save taxes and increase savings. In this article we shall talk about the most efficient ways available today to help you increase your savings and reduce your taxes so that what you earn stays with you as much as possible. This article is compiled to give you an overview of the best tax saving investments.
Investments are a great way of ensuring that your money is in turn making money and not staying idle in a locker. Sec. 80C of the Income tax act provides investments which are exempted from being taxed and as such if you invest your savings in these ventures you can significantly cut down on the taxes you’d have to pay otherwise.
Here is a list of the best tax saving investment in India for 2019-20:
ELSS (Equity linked saving scheme)
The ELSS provides income tax benefits under section 80C up to INR 1.5 Lac p.a. The mutual investment is not entirely risk free but a medium to long term investment can give good returns and the long term capital gains up to INR 1 lac are tax free.
Public provident fund(PPF)
The interest you receive on your investments in PPF is tax free and with a lock-in period of 15 years is a regular source of income without being taxed on it. Investment up to INR 1.5 lac is exempted from tax deductions under section 80C of the income tax act.
Sukanya Samriddhi Account Scheme
To restore the growing deficit in gender ratio, the sukanya samriddhi account scheme provides great financial benefits to the parents of a girl child. Govt. offers 8.5% interest on the invested money and once the girl reaches the age of 21, the account matures and the interest earned in these 21 years is tax free.
One of the traditional ways of saving taxes, fixed deposits is still popular and with increasing interest rates FDs are much more lucrative to investors. The investment is FDs are exempted but one still has to pay taxes on the returns. The 5 year lock-in period means you must look for the vendors that provide the highest interest rates for your FDs.
SCSS (Senior citizen saving schemes)
Senior citizens can invest money to get guaranteed returns at fixed intervals at an interest rate of 8.7% and not be subjected to any taxes. With a maturity period of 5 years, the scheme is tailor made to meet the short term requirements of the senior citizens in saving taxes.
Voluntary provident fund
The investment made in your provident fund voluntarily by you also provides exemption from income tax on the amount you have invested as a VPF. The investment made is beyond the already 12% you’re paying for your EPF. The lock-in period as that of the EPF and can be withdrawn partially. The maturity returns are tax free as well as the withdrawal amount is tax free only if the account is older than 5 years.
New pension scheme
Investing in your pension scheme to secure your retirement also exempts you from taxes on the invested amount and you can also get further exemptions by investing in tier1 schemes under section 80CCD. It is to be noted that in tier 1 schemes, the amount will be locked until you retire and can only be withdrawn under certain conditions. This makes the tier 1 schemes much more reliable for your post retirement plans.
National saving certificate
The NSC is provided by the postal services, public sector banks and private banks and these certificates are backed by the govt. The interest earned is tax free under section 80C. Since there is no limit of investment in NSC, you can invest as much as you can and with a lock-in period of 5 years, you get guaranteed high interest returns and get your principal amount relatively fast compared to other investments and can go on to invest again and again.
We all are going to die one day and leave our near and dear ones alone. Life insurance plans secure your future and ensure financial stability in the times of need as well as provide tax exemptions. A life insurance scheme stabilizes the future of your family in case your untimely demise and provides ample cover for them to have some financial security and give them a breathing space while they look for other means to sustain themselves.
ULIP (Unit linked investment plan)
ULIP provides both life insurance and investment opportunity to the investors and with lower charges; ULIP has become a lucrative way of saving taxes and increasing your savings. One must have a long term ULIP scheme to see a sizeable return of up to 12%. The investment done in ULIP is exempted from tax under section 80C of the income tax act.
For people who have recently bought a home, sec. 24 provides tax benefits up to INR 2 lac. You can get tax benefit on home loan interests up to INR 2 lac, i.e. up to INR 2 lac; the interest you’re paying on your home loan will get you exemption from paying tax on that amount. One can also get principal repayment benefit on home loans up to INR 2 lac under section 80C.
Retirement plans must be taken seriously as it affects how you’re going to lead your life after retirement. Investing in pension funds provides tax exemption and even after retirement one can invest in the immediate annuity plans to ensure that they keep earning interest on their savings while still being paid a pension amount.
The government and economic system of the country promotes the notion of doing as much savings as possible and has provided a number of schemes for people to invest in so as to future proof their retirement and the future of their families. While these savings plans provide a stable future they also provide an immediate tax relief for the investors. As such there are a number of investment opportunities for you to invest in and figure out the best tax saving investment in India that suits your needs.