Several investments can help you save on your taxes. Below are the popular tax-saving investments that would help you reduce your tax outgo for the year.
One can save taxes under different sections of the Income Tax Act such as Section 80C, Section 80 CCC, Section 80 CCD. Under these sections, one can claim taxes to a maximum of 1.5 Lakh for the year.
Additionally, one can get a tax benefit of Rs. 50,000 for investments in NPS totalling to 2 Lakhs per year. So, an individual falling in the tax bracket of 30% can save up to Rs. 62,400 in tax every year. Here are six such tax-saving investments that can help you with good returns as well as save on the outgo tax amount.
5-year Tax Savings Fixed Deposit
Fixed deposits are the most comfortable and risk-free investment option. These fixed deposits come with 5-year lock-in period. During the lock-in period, one cannot withdraw any amount from the account. If you have KYC complaint account, then opening a Fixed deposit from any bank in India is easy.
However, the interests earned on the fixed deposit are fully taxable and subject to TDS. One can also open a Fixed deposit account with the post-office and get a complete exemption from taxes on the interest earned.
Equity Linked Savings Scheme (ELSS)
ELSS is the most popular tax saving investments mutual fund that invests primarily in equity funds. ELSS has a lock-in of 3 years and has a return of 12-15% which are subject to changes. Along with the capital appreciation, this also has added tax benefits.
ELSS qualifies for a tax deduction up to 1.5 lakhs every year. However, ELSS funds are taxable under long term gains tax at 10% if the gains per year are above 1 Lakhs.
Public Provident Fund (PPF)
Public Provident fund is a government guaranteed investment option that has fixed returns. The interest on this fund is revised by the government quarterly and has a lock-in period of 15 years.
The best thing about the PPF funds is that it comes with triple exemption benefit or Exempt-Exempt-Exempt category. Triple exempt category means that the principal amount, interest on ELSS and the maturity amount are exempt from taxation.
You can start your PPF account as low as Rs. 500 while the maximum amount isn’t fixed, but you can get tax-exempt up to 1.5 lakhs per year.
ULIPs (Unit linked insurance Plans)
ULIP are popular investment cum insurance option. Here a part of the sum is invested in mutual funds either equity or debt and the remaining part is invested for life cover. The premium paid against the life coverage is tax-free only if the premium is lesser than 10% of the sum assured for life cover.
National Pension Scheme (NPS)
NPS is considered a unique tax-saving method as the contributions towards NPS is tax-free up to 1.5 lakhs under section 80CCD and additional deduction of Rs. 50,000 under Section 80 CCD (1B). This additional deduction is only given to Atal Pension Yojana.
60% of the maturity amount is tax-free when withdrawn at the age of 60, while the rest 40% of the corpus can be used to buy an annuity which is taxable.
National Saving Certificate (NSC)
NSC is a saving certificate issued by the Government of India that allows a tax deduction on the amount invested and the interest earned on it. So a NSC investor can claim tax on both the principal and the interest amount up to 1.5 Lakhs under Section 80 C.
Unlike FDs, the NSC can be pledged to get a loan against it.