Investments for tax saving

Tax Saving

Compiled by Vraj Dani

Many of us are concerned about how to save taxes or plan our investments. Tax planning is essential, and so are tax saving schemes. All of them aim to save taxes in India, but only a miniscule percentage of them are successful in doing so. It is due to a lack of knowledge or struggles in your investment plan. 

The best tax-saving instruments under Section 80 C of the Income Tax Act 1961 are:  

  • Equity Linked Savings Scheme (ELSS) 
  • Public Provident Fund (PPF) 
  • Unit Linked Insurance Plan (ULIP) 
  • National Savings Certificate (NSC) 
  • National Pension System (NPS) 
  • Sukanya Samriddhi Yojana (SSY) 
  • Fixed Deposits (FD) 
5-Year Bank Fixed Deposit 6% to 7% 5 years 
Public Provident Fund (PPF) 7% to 8% 15 years 
National Savings Certificate 7% to 8% 5 years 
National Pension System (NPS) 12% to 14% Till Retirement 
ELSS Funds 15% to 18% 3 years 
Unit Linked Insurance Plan (ULIP) Varies with Plan Chosen 5 years 
Sukanya Samriddhi Yojana (SSY) 7.60% N/A 

1. Equity Linked Savings Scheme (ELSS) 

ELSS for Tax saving

Equity Linked Savings Schemes invest a significant portion of their funds in equity. The fund is also subject to a three-year lock-in period. Tax deductions are available up to a maximum of 1.5 lakhs under Section 80 of the IT Act. Gains on the sale of ELSS are taxable at 10% as long-term capital gains (LTCG). However, in a fiscal year, LTCG up to Rs. 1 lakh is exempt. ELSS funds provide both capital appreciation and tax savings. As a result, it is one of the most popular tax-saving schemes among investors. 

2. Public Provident Fund (PPF) 


PPF is a Government of India initiative with guaranteed returns and low risk. The current PPF interest rate is 7.1% per year, compounded. Under Section 80C of the IT Act, you can claim a maximum deduction of Rs. 1.5 lakhs on the amount deposited in the PPF account. 

Furthermore, PPF is classified as Exempt, Exempt, Exempt (EEE), which means that the amount invested, accumulated interest earned, and amount received upon maturity/withdrawal are all tax-free. The PPF tenure is 15 years, which can be extended by a block of 5 years after the initial 15 years. 

 3. Unit Linked Insurance Plan (ULIP) 


One of the most important investment plans in India is the ULIP Life Insurance Plan. It ensures that one’s family is financially secure in the event of death. The taxpayer can benefit from the income tax act by purchasing a life insurance policy. 

The premium paid toward the purchase of a life insurance policy is deductible up to Rs. 1.5 lakh under section 80C of the Income Tax Act of 1961. Furthermore, income from the policy’s maturity is tax-free under Section 10(10D). The same remains as a tax exemption in the hands of the nominee if insured. If the premium is less than 10% of the sum assured, the income is tax-free. In the event that the money is transferred to the nominee of the person insured, it is tax exempt in the nominee’s hands. 

4. National Savings Certificate (NSC) 

national savings certificate

A government of India initiative, a national savings certificate is a fixed income investment scheme that aims at the small and middle-income investors to invest and earn handsome returns. The NSC, which has a five-year lock-in period, is also a government-backed tax-saving instrument with guaranteed returns. The NSC is available throughout the country at designated post offices for a minimum investment of Rs. 1000. 

The NSC rate of interest for 2022 is 6.80% compounded annually, making it an excellent small savings investment scheme. You can benefit from tax savings and accrued interest under Section 80C of the Income Tax Act by investing in NSC, up to a maximum of Rs. 1.5 lakhs per fiscal year. 

5. National Pension System (NPS) 

National Pension Scheme

NPS  or National Pension Scheme has become a popular income tax saving investment product. It is a tax saving option that is available to both government and private employees. It enables the depositor to build a corpus for their retirement along with a regular monthly income. It is another prudent tax-saving instrument launched by the Central Government to provide pension benefits to all Indian citizens. NPS have a three-year lock-in period and market-linked returns, so there is some risk involved. Section 80C, like other tax-saving instruments, allows you to claim tax benefits of up to Rs. 1.5 lakhs. 

After three years, you may withdraw up to 25% of your NPS contribution in three equal instalments. Employees of the Central Government and some state governments are required to participate in the scheme. Employees in the private sector can choose between EPF and NPS. 

6. Sukanya Samriddhi Yojana (SSY) 

Sukanya Samriddhi Yojna

One of the most important tax-saving schemes is the Sukanya Samriddhi Yojana. The government of India launched it in 2015 as part of the Beti Bachao Beti Padhao campaign. It had a significant impact on the general public. The scheme allows for a fixed income investment in which the taxpayer can make regular deposits while earning interest. Sukanya Samriddhi Yojana investments are also deductible under Section 80C of the Income Tax Act. 

The rate of interest on the scheme is determined quarterly by the government of India and is payable upon maturity. The scheme has a 21-year lock-in period and will mature after that time period expires. A yearly deposit of Rs. 250 is required for a period of 15 years. Failure to pay the minimum amount in a year will result in the account being disconnected. To reactivate the account, you must pay a Rs. 50 penalties in addition to the original Rs. 250 deposits. 

7. Fixed Deposits (F.D.) 

Fixed Deposit

FD with banks is another good tax saver investment alternative. You get a tax deduction up to ₹1.5 lakhs under section 80C for FD investment made in a financial year.