5 Best Tax Saving Options in India

Looking for the best tax saving options in India, you have landed at the correct place. You shall know about various popular tax saving options to help you in your financial journey.

In a country like India,one has to shed extra money in the form of taxes may it be in the form of direct taxes or indirect taxes. We often tend to either ignore or are not aware of the various options that might be helpful in reducing our overall tax burden. So,with the help of proper and effective tax planning you can reduce your taxes to some extent.

But, proper tax planning is a challenging task,if you make the wrong selection,you might get stuck in that investment for 2-5 years.So,you have to be very cautious while making a choice of investments in order to reduce your tax liability.

Here,we shall be discussing a few of the best tax saving options that will prove beneficial to you.

5 Best Tax Saving Options in India :

1. Equity Linked Saving Scheme(ELSS) :

ELSS has been an important and very popular mode of investment in India.This is a tax saving equity mutual fund where you can enjoy tax benefits along with appreciation in your capital.Minimum lockin period is 3 years from the investment date.

The biggest advantage is that the lockin period is lower as compared to other options like PPF,NSC etc.So,it is a good option for short term as well as long term investors.

ELSS can be in the form of growth or dividend options. If you start a SIP today towards growth scheme,you will get a lumpsum amount after a period of 3 years.But,if you opt for dividend option,you will earn regular dividend as and when dividend is declared on the fund.

Tax BenefitYou can claim maximum of Rs.1.5 lakhs as deduction U/s 80C by investing in ELSS. Further,the returns on ELSS are completely tax free.

For some exclusive tax saving tips refer : ELSS or Equity Linked Savings Scheme-Things to Know !

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2. Unit Linked Insurance Plans(ULIPS) :ULIP is an insurance product that provides you insurance as well as investment opportunity.A part of your investment in the form of monthly premium goes towards life insurance and the rest is invested as in case of mutual funds both equity and debt.

Tax Benefit : Premium paid for ULIP is deductible U/s 80 C upto maximum Rs.1.5 lakhs. The tax deduction is allowed maximum upto 10% of sum assured.Further,you need to continue ULIP for at least 5 years in order to claim the tax benefits.

For policies purchased after 1.04.2012 ,check

If premium paid <10% of sum assured,the maturity amount is exempt from tax.

If premium paid >10% of sum assured,the maturity amount shall become”Income from other sources”and taxed at the prevalent tax slabs.

Don’t just consider Insurance as another Investment or tax saving option, but an essential part of your Financial portfolio. Adequate insurance cover is important for the financial security of your family.

3. National Pension Scheme(NPS) : NPS is a government approved pension scheme regulated by Pension Fund Regulatory And Development Authority (PFRDA).The main aim of investing in NPS is building a retirement corpus for yourself. You can start contributing to NPS at an early age of 18 years maximum upto 60 years.

It is mandatory for central and state government employees while others can voluntarily contribute to it. But,there are restrictions on its withdrawal before retirement and the minimum 40% of the corpus has to be used to buy annuity.

Under NPS or National Pension Scheme 2 types of Pension Accounts are there :

(i) Tier I Account : You contribute to NPS account with certain restrictions on withdrawal.

(ii) Tier II Account : You can withdraw from Pension account any time without any restriction.

For Tier I Account : The minimum annual contribution has been reduced to Rs.1000(earlier this was Rs.6000).

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For Tier II Account : The minimum annual contribution of Rs.250 and maintaining a minimum balance of Rs.2000 at the end of the financial year has been waived.

Tax Benefit : By investing in NPS you can claim deduction U/s 80 CCD upto a maximum of Rs 1.5 lakhs. But,you should be clear that total deduction U/s 80 C, 80 CCC, 80 CCD(1) and 80CCD(1B) cannot exceed Rs.2 lakhs.

But,the biggest drawback of this scheme is that while 40% corpus is invested in annuity plan,the rest 60% amount shall become taxable at maturity.

For detailed analysis on NPS you can refer our popular blog post : National Pension Scheme or NPS – Your perfect guide !

4. Public Provident Fund (PPF) : This is one of the most common methods of investing your funds.PPF is a tax free investment that helps you in planning for your retirement.You can open a PPF in any nationalised/authorised bank and a minimum deposit of Rs.500 is required to be done every financial year.You can invest in a PPF Account upto a maximum of Rs.1.5 lakhs.

PPF interest rate was 7.8% only for Oct’17 to Dec’17 which has been further reduced to 7.6 % per annum for Jan 2018 to March 2018.

But, the lockin period for PPF is 15 years. Although partial withdrawal can be made from 5th financial year of opening the account subject to certain conditions.

PPF is considered as a safe long term investment option since the past few decades. People who generally don’t want to take any risk and earn a fixed rate of interest accompanied with tax benefits opt to invest in it. The interest rates are determined by government from time to time.

In PPF there is no risk attached, you will get the accumulated balance of your investment and interest thereon at maturity.

To have a deeper insight you can refer : PPF Account,PPF Interest rate,PPF Rules – The Ultimate guide !

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Tax Benefit :It is an attractive investment option due to its EEE (Exempt,exempt and exempt at all the 3 stages) nature i.e. Contribution made to PPF is exempt.The contribution made to PPF Account can be claimed as a Tax deduction U/s 80 C upto a maximum of Rs.1.5 lakhs.The interest earned is exempt and finally the maturity amount is also exempt from tax in the hands of investor.

PPF being a tax free investment is normally considered as a good way to invest your money and earn risk free returns.

A Must read : PPF or ELSS -Which is better Investment ? and PPF or Sukanya Samriddhi – Which way to go ?

5. Senior citizen Saving Scheme :It is a good investment option for retirees i.e.this scheme is available only to investors of the age of 55-60 years .The investment limit is Rs.15 lakhs and the tenure of the scheme is 5 years extendable to another 3 years.Interest is usually paid on quarterly basis.

Tax BenefitSenior Citizen Savings Scheme qualifies for Tax benefit U/s 80 C of Income tax act.

A combination of the above investments in the right proportion can definitely save you from paying some extra taxes.Besides that,a well planned investment portfolio based on your income,savings,duration of investment,risk etc. can add fairly good returns to your pockets.

Now,how to save tax is based on the right choice of investments you make.So,invest wisely and enjoy the maximum tax benefits.

Also if you are a salaried employee,go through one of our popular blog posts : 7 Tax  saving tips for salaried class  that will further help you in your tax planning.

Do share your valuable feedback, for any queries post in the comment section below…

If you have any other ideas or tax saving tips that can help our readers in their tax planning, feel free to share them.

Save your Taxes !


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