Last Updated on May 30, 2023 by Anjali Chourasiya
Taxes can take away a significant chunk of your income. If not planned properly, there might be a possibility that you’ll have to shell out huge taxes. However, there are numerous investments you can make to save the money you pay on taxes. For this, there are various investment options. Among them, one of the most popular options comes under Section 80C of the Income Tax Act, 1961. Let’s explore a few tax-saving investments you can pick from to save taxes.
Table of Contents
Unit Linked Insurance Plan (ULIP)
ULIPs are investment options where you get the benefits of owning an insurance plan while gaining returns from it. Here, the periodical premiums paid are partly used to provide a safety net while the rest is invested in the market. The longer you stay invested, the higher your returns will be.
Tax benefit: ULIP qualifies for a tax deduction of up to Rs. 1,50,000 under Section 80C of the Income Tax Act, 1961. However, this deduction is applicable only if the premium is less than 10% of the sum assured of the plan. For premiums beyond 10%, the deduction amount is still capped at 10%.
So, for instance, if the premium you pay under a policy is Rs. 3,00,000 for a sum assured of Rs. 15,00,000, the deduction amount will be limited to Rs. 1,50,000. Moreover, there is a lock-in period of 5 yrs on ULIP Policies. As a result, you can directly save taxes through ULIP tax exemption benefits.
Note: Apart from these, even regular insurance plans with a lock-in period of three years are eligible for a deduction of up to Rs. 1.5 lakh. However, do not purchase an insurance policy solely to save on tax.
Tax saver fixed deposits
These are a kind of fixed deposits offered by banks, with a mandatory lock-in period of 5 yrs.
Tax benefit: Deductions on tax saver FDs can be claimed up to Rs. 1.5 lakh. However, the interest earned is taxable.
Equity-linked Savings Schemes (ELSS)
ELSS is a kind of equity-based mutual fund that invests at least 65% of the portfolio in equities and comes under the preview of Section 80C with a mandatory lock-in period of three years. However, it must be noted that returns are not guaranteed as the fund is vulnerable to market fluctuations.
Tax benefit: Tax deductions of up to Rs. 1.5 lakh can be claimed. The LTCG from ELSS is tax-exempt if they are less than Rs. 1 lakh. If the returns exceed Rs. 1 lakh, they are taxed at 10%.
Public Provident Fund (PPF)
This is a Government operated scheme where individuals can deposit any sum between Rs. 500 to Rs. 1.5 lakh per annum into their account. The amount cannot be withdrawn for 15 yrs. After 15 yrs, the account must be renewed once every 5 yrs.
Tax benefit: PPF enjoys a triple tax exemption. Yearly deductions of up to Rs.1.5 lakh can be claimed, the interest earned on the deposit is tax-free, and the amount withdrawn at maturity is also completely tax-free.
Sukanya Samriddhi Yojana (SSY)
As a part of the Beti Bachao, Beti Padhao campaign, the Government in 2015 launched the SSY scheme. An account under this scheme can be opened and operated by the guardian of a girl child. Any amount between Rs. 250 to Rs. 1.5 lakh can be deposited into this account annually.
Tax benefit: SSY also enjoys a triple tax exemption- up to Rs. 1.5 lakh annually, on the interest earned and on withdrawal of the maturity amount.
National Savings Certificate (NSC)
It is a Government operated fixed income scheme run by post offices that has a mandatory lock-in period of 5 yrs.
Tax benefit: Tax deductions of up to Rs. 1.5 lakh can be claimed. For the first four years, interest earned from NSC is reinvested into the scheme and can be claimed as a deduction. However, after 5 yrs, the interest earned is taxable.
National Pension System (NPS)
NPS is a voluntary retirement scheme operated by the Government. Individuals are required to invest in this scheme on a periodical basis. At maturity, i.e., at retirement, they can withdraw a certain percentage of the fund. The remaining part is given as a pension on a monthly basis.
Tax benefit: A deduction of up to Rs. 1.5 lakh can be claimed annually for your and your employer’s contribution. An additional deduction of up to Rs. 50,000 can be claimed on any extra voluntary contribution you make.
A comparison table of all the above-mentioned schemes
| Investment | Lock-in period | Rate of return | Tax benefits |
| Unit Linked Insurance Plan (ULIP) | 5 yrs | Varies from plan to plan | Up to Rs. 1.5 lakh annually |
| Tax-Saving Fixed Deposits | 5 yrs | Varies from bank to bank | Up to Rs. 1.5 lakh annually |
| ELSS (Equity Linked Savings Schemes) | 3 yrs | Varies from scheme to scheme | Up to Rs. 1.5 lakh annually |
| PPF (Public Provident Fund) | 15 yrs | 7.1% for April – June 2023 | Up to Rs. 1.5 lakh annually, on interest earned and on the maturity amount |
| SSY (Sukanya Samriddhi Yojana) | 21 yrs | 8% (revised quarterly) | Up to Rs. 1.5 lakh annually, on interest earned and on the maturity amount |
| National Savings Certificate (NSC) | 5 yrs | 7% (revised quarterly) | Up to Rs. 1.5 lakh annually, interest taxed after 5 yrs |
| National Pension System (NPS) | Until retirement | 4-9% | Up to Rs. 1.5 lakh |
Conclusion
Individuals constantly wonder about different methods through which they can save taxes. By investing in above-mentioned tax saving investments in India, not only can you avail the innumerable tax exemptions, deductions, and claims, but also build yourself a safety net for the future. Do thorough research and due diligence before investing in these schemes, as most of them do have lock-in periods. Consult your financial advisor before investing in any scheme or fund.
FAQs
Which is the best tax-saving instrument in India?
There are various tax-saving instruments in India. A few of them are Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), National Savings Scheme (NSC), Unit Linked Insurance Plans (ULIP), Tax Saver Fixed Deposits, and more.
What are the best high-return tax-saving investments under Section 80C in India?
Under Section 80C, there are several high-return tax-saving investment schemes. The 7 of them are:
– Unit Linked Insurance Plan (ULIP)
– Tax saver fixed deposits
– Equity-linked Savings Schemes (ELSS)
– Public Provident Fund (PPF)
– National Savings Certificate (NSC)
– Sukanya Samriddhi Yojana (SSY)
– National Pension System (NPS)
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