Tax saving options that you should know in India

Under the Income Tax Act, there are several tax-saving investment schemes available to reduce tax outgo without any stress. To make money grow, it is necessary to make wiser and more effective investments for personal and future financial goals such as children’s education, retirement, and so on. The Indian Income Tax Act of 1961 provides a number of tax saving options that allow investors to invest while reducing their tax liability.

The majority of these tax-saving options are covered by section 80C of the Income Tax Act. The total amount of deductions available for all investment options is Rs. 1.5 lakh. Let’s take a closer look at some of the best tax-saving options and how they can help you save money.

Tax saving schemes and options

Here are the few tax saving schemes and options:

Public Provident Fund (PPF)

When it comes to tax-saving options, the provident fund is regarded as the best tax-saving investment under Section 80C for investors seeking a lower level of risk.

PPF investments have a 15-year lock-in period, which individuals can extend every five years based on their own paying capacity. The Ministry of Finance determines the PPF interest rate, which is currently 7.9% per annum.

The best thing about PPF is that it offers tax breaks at every level in India. In general, this means that PPF contributions are tax deductible under section 80C, and the collected amount and interest are tax-free upon withdrawl. PPF is one of the best tax saving schemes because it provides tax benefits in the long run.

Equity Linked Saving Scheme(ELSS)

The ELSS is a diversified equity mutual fund that qualifies for tax breaks under Section 80C. The funds collected from investors for ELSS are mostly invested in the stock market.

The lock-in period for ELSS is three years. Furthermore, if you choose SIP, each SIP instalment has a different maturity date.

One significant advantage of ELSS is that they provide comparatively higher returns because they are market-linked. As a result, ELSS is one of the most advantageous and profitable tax-saving investment options.

Tax saving options
Tax saving options
Unit Linked Insurance Plan(ULIP)

ULIPs are also considered tax-saving schemes because they are deductible under Section 80C. Furthermore, ULIPs cover both market-linked and life cover returns and have a five-year lock-in period.

In ULIPs, a portion of the premium is used to provide life insurance, while the remainder is invested directly in funds of your choice.

There are a variety of ULIP investment options available, and the return on investment is market-linked. Section 10 (10D) of the Income Tax Act exempts investment returns from taxation as well.

Sukanya Samridhi Yojana

Sukanya Samridhi Yojana has evolved into an important tax-saving scheme in India. The Indian government launched it in 2005 as part of the Beti Bachao Beti Padhao campaign.

This campaign had a large impact on the general public. The Sukanya Samridhi Yojana scheme allows for a fixed income investment in which the taxpayer makes regular deposits while earning regular interest. Sukanya Samridhi Yojana investments also qualify for a tax deduction under Section 80C of the Income Tax Act.

The rate of interest on the scheme is determined by the government of India every quarter and is payable upon maturity. The scheme has a 21-year lock-in period and a minimum deposit of RS 150 for 15 years.

  • This scheme is only available to female children.
  • The girl child is not allowed to reach the age of ten. A one-year grace period is provided, allowing the parent to invest with one year of the girl child’s tenth birthday.
  • The investor must provide proof of the daughter’s age.
Tax saving Fixed Deposit

Another tax-saving investment that is lower risk and higher return is a fixed deposit. The interest rate on fixed deposits is set by banks. Here are some advantages of a tax-free fixed deposit.

  • A 5-year minimum lock-in period.
  • Investment interest rates are higher, particularly for senior citizens.
  • Fixed deposit investments are deductible under Section 80C when calculating taxable income.
  • If they have a joint account, the primary holder can take advantage of a tax deduction when calculating taxable income.
  • The tax saver gains access to early withdrawal after the 5-year lock-in period expires. However, the terms and conditions differ from one bank to the next.
National Saving Certificate

Certificate of National Savings (NSC) Because it functions similarly to a fixed income investment, NSC is one of the best tax-saving options for small investors.

This tax option, like PPF, is low risk and offers guaranteed returns. NSC has two maturation periods: five years and ten years.

There is no upper investment limit, but as with other 80C investments, the maximum amount available for deduction is Rs 1.5 lakh, and the annual interest rate is 7.9 percent compounded.

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