There are certain tax saving investment options which help us in reducing our taxes. It is better to follow the tax-saving schemes than to invest in the financial product which will be harmful in the long run. It will benefit financially as well as saving tax by maintaining an optimum debt equity mix. According to sec 80C of Income Tax Act, 1961, an individual can invest in the Public Provident Fund (PPF), Life Insurance Premiums, National Savings Certificates of India Post, Tax saving mutual funds, Post office fixed deposits up to Rs.1.5 lakh which will not only save tax but also benefit financially.
Some of the top tax saving investment options that can be selected to save tax and get financial benefits in the long run are:
- Public Provident Fund (PPF)
One of the popular tax saving instrument which is having a fixed interest rate made on April 1 every year which will be related to the bond yields. The interest rate is made on a 25 basis points higher than the 10 year government bond yield of the previous year. At present, PPF gives a return of 8.7% per annum which is compounded yearly.
This scheme is suitable to high risk investors and self employed professionals who are not under Employees Provident Fund scheme and is allowed to invest a deposit of minimum 500 and a maximum of 1.5 lakhs in 12 installments or in lump sum.
The earnings obtained from this scheme is tax free and the tax deduction gets at the time of investment every year. During the 7th year part withdrawal is allowed and also loan facilities are available from the 3rd year.
- National Pension Scheme
It is an investment tool for retirement planning introduced in 2004 and for government employees in 2009 and then extended to all private sector employees.
Under sec 80CCD, the government allowed tax benefit on investment up to Rs.50000 which is more than the benefit allowed under sec80C. Non- government employees is allowed 50% contribution to be invested in equities and remaining in government debt paper.
At the time of withdrawal the investment in NPS IS not tax free as compared to PPF & EPF. After being in the scheme for 10 years the NPS tier1 account subscriber can make partial withdrawal up to 25% of contribution.
- Equity Linked Savings Scheme
As compared to PPF and NPS, ELSS is more risky and needs investor prudence. As it is an equity linked fund there is no guarantee of funds as it face the stock markets. Unlike other equity funds the minimum investment made in ELSS is Rs.500
With SIP, one can invest a fixed amount every year up to 15 years. ELSS funds score higher than other tax saving schemes and have a lock-in period for only 3 years.
- Unit Linked Insurance Plans
It is a market linked insurance scheme which offers tax saving under sec80C. It offers the advantage of life cover with an investment in equity and debt market which ensures tax savings. The lock-in period was raised to 5 years and the sum assured was raised up to 10 times the premium.
We are sure that these top tax saving investment options will help you to plan your life better.