A key component of financial planning is tax savings. A clever tax-planning approach can accomplish the dual purpose of assisting people in reaching their financial objectives and reducing their tax liability.
The top tax-saving investment choices and strategies for 2024 are listed below to assist people in optimizing their tax advantages:
1. Fixed deposit
You can save tax by investing in tax saver Fixed Deposits which can fetch you tax deduction under section 80C of the Indian Income Tax Act, 1961. You can claim a deduction of a maximum of Rs.1.5 lakh by investing in tax saver fixed deposits. There is a lock-in period of 5 years for such FDs and the interest earned is taxable. The rate of interest usually ranges from 5.5% – 7.75%.
2. PPF (Public provident scheme)
The Public Provident Scheme is a popular investment vehicle for saving tax. A long term savings cum investment products, you need to open a PPF account at the post office or designated branches of public and private sector banks to start with. Contributions to the PPF account earn a guaranteed rate of interest. You can claim deductions under Section 80C up to Rs 1.5 lakh in a financial year on these deposits.
3. ULIP (Unit linked insurance plan)
ULIPs are long term investment products that allow you to choose equity funds, debt funds or both. ULIPs give you the flexibility to switch between funds in sync with your financial goals. By investing in ULIPs, you can save taxes under sections 80C and 10(10D) of the Income Tax Act, of 1961.
4. National Savings Certificate
National Savings Certificates are a savings bond scheme that encourages primarily small to mid-income investors to invest while saving on income tax under Section 80C. If you have a Savings account with a Bank or a Post Office, you can buy NSC certificates in e-mode, provided you have access to internet banking. NSCs can be bought by an investor for self or on behalf of a minor or with another adult as a joint account.
5. Senior Citizen Savings scheme
Senior Citizen Savings Scheme (SCSS) is a government-sponsored savings instrument for individuals above the age of 60 that gives a steady and secure source of income for their post-retirement phase and offers comparatively substantial returns.
The principal amount deposited in an SCSS account is eligible for tax deductions under Section 80C of the Income Tax Act, 1961, up to the limit of Rs. 1.5 Lakh. However, this exemption is applicable only under the existing tax regime. It is not allowed if an individual chooses to file tax returns under the new system introduced in Union Budget 2020.
The interest received is, however, subject to taxation as per the applicable slab of the concerned taxpayer.
6. Life insurance
Life insurance plays an important role in the individual’s financial portfolio offering security to the individual’s family in case of an eventuality. This makes it the breadwinner’s primary responsibility to take life insurance at the earliest for the family’s security.
Life insurance, be it traditional (endowment) or market-linked (ULIP), offers tax benefits to policyholders on the premiums paid. There are various life insurance plans like:
Regardless of its nature, life insurance plans offer tax benefits to policyholders.
Premiums paid towards life insurance are covered under Section 80C of the Income Tax Act up to a maximum of Rs 1.5 lakhs. Proceeds on death/maturity are tax-free under Section 10(D). If a policy is surrendered/terminated within five years, deductions claimed are added to income and taxed accordingly
- Term plans
- Endowment plans
- ULIPs or unit-linked plans
- Money back plans
7. Pension plans
Pension Plans are another form of life insurance. They serve a different end objective from other insurance plans like term plans and endowment plans – which are called protection plans. While protection plans are geared to financially secure the individual’s family on his death, pension plans aim at providing for the individual and his family if he lives on.
Contributions towards pension are covered under Section 80CCC(sub-section under Section 80C) of the Income Tax Act. The aggregate limit of deduction under all the sub-sections of Section 80C cannot exceed Rs 1.5 lakhs.
On maturity 1/3rd of the accumulated pension amount is tax-free with the balance 2/3rd treated as income and taxed at the marginal tax rate. The amount is tax-free upon the death of the beneficiary.
8. Health insurance or Mediclaim
Health insurance or Mediclaim as it is more popularly known, covers expenses incurred from an accident/hospitalization. Mediclaim also covers pre and post-hospitalization expenses, subject to the sum assured
Health insurance offers tax benefits under Section 80D. Insurance premiums up to Rs 20,000 for senior citizens and Rs 15,000 for others are eligible for tax benefits. If the policyholder pays Rs 15,000 as a premium on his own policy and Rs 20,000 for his parent, a senior citizen, he can claim a tax benefit of Rs 35,000 (Rs 15,000+20,000). Maturity value is tax-free for the sum received under critical illness insurance policies policies
9. NPS
The NPS or the New Pension Scheme is regulated by the Pension Funds Regulatory and Development Authority – PFRDA. Any citizen of India over the 18 – 60 years age bracket can participate in it. It is extremely cost-effective since fund management charges are low. The fund managers manage the money in three separate accounts having distinct asset profiles viz. Equity (E), Corporate bonds (C) and G Government securities (G). Investors can choose to manage their portfolio actively (active choice) or passively (auto choice).
Read Also: How Can I Save Capital Gains Tax on Property?
Contributions made to the NPS are covered under Section 80CCD of the Income Tax Act. The aggregate limit of deduction under this section along with Sections 80C, 80CCC cannot exceed Rs 1.5 lakhs.
Given the range of options, NPS is particularly useful for individuals, with varying risk appetites, looking to set aside money for retirement.
10. Tax-saving mutual funds
Investments in tax-saving mutual funds, also known as equity-linked savings schemes (ELSS), qualify for tax benefits. Tax-saving mutual funds invest in stock markets, among other assets, and are more suited for investors with a medium to high-risk appetite. Investments are locked in for three years.
Investments towards tax-saving mutual funds are covered under Section 80C of the Income Tax Act up to a maximum of Rs 1.5 lakhs. Proceeds on death/maturity are tax-free under Section 10(D).
Which Investment is Best For Tax-saving?
Despite the wide range of tax-saving options on the market, individuals frequently struggle to choose the plan that best fits their needs.
You can select the best investment plan based on your preferences and risk tolerance by referring to the following table, which lists the top tax-saving investments under the Income Tax Act of 1961:
| Investment Option | Returns* | Lock-in Period | Tax Benefits Under Sections |
| Unit Linked Insurance Plan (ULIP) | 11% to 20% p.a. (depending on the chosen plan) | 5 years | Section 80C and 10 (10D) |
| Sukanya Samriddhi Yojana (SSY) | 8% p.a. | 21 years | Section 80C and 10 (10D) |
| Public Provident Fund (PPF) | 7.1% p.a. | 15 years | Section 80C |
| Employee Provident Fund (EPF) | 8.15% p.a. | 5 years | Section 80C |
| Senior Citizen Saving Scheme (SCSS) | 8.20% p.a. | 5 years | Section 80C |
| National Pension Scheme (NPS) | 9% to 12% p.a. | 3 years | Section 80C, 80 CCD(1B), and 80 CCD(2) |
Unit Linked Insurance Plan (ULIP)
ULIPs, or Unit Linked Insurance Plans, are investment-cum-insurance products offering tax-saving benefits in India. ULIPs are also one of the popular tax-saving investments. They combine the elements of life insurance and the best investment options, providing individuals with an opportunity to grow their wealth while ensuring financial protection.
Sukanya Samriddhi Yojana (SSY)
The Sukanya Samriddhi Yojana (SSY) is a government-backed savings scheme that offers attractive tax benefits. It aims to promote the welfare of the girl child and encourage parents to save for their daughter’s future expenses like education and marriage. It was launched as a small deposit scheme as part of the ‘Beti Bachao Beti Padhao’ campaign. However, a significant percentage of salaried people, too, consider this as one of the tax-saving investments in their portfolio.
Public Provident Fund (PPF)
The Public Provident Fund (PPF) is a long-term investment scheme offered by the Government of India. It is a tax-saving investment option that comes with a 15-year lock-in period. PPF subscribers can invest up to Rs. 1.5 lakhs in a financial year.
Employee Provident Fund (EPF)
The Employee Provident Fund (EPF) is a government-backed savings scheme in India that aims to provide retirement benefits to employees. As one of the key tax-saving investments, EPF offers several benefits to both employees and employers.
Senior Citizen Savings Scheme (SCSS)
The Senior Citizen Savings Scheme is a savings investment option launched by the Government of India. It offers senior citizens a safe and profitable investment option with attractive interest rates. The below-mentioned tax benefits of SCSS are only available to senior citizens (60 years old and above).
National Pension Scheme (NPS)
The National Pension System (NPS) is a government-sponsored pension scheme that offers several tax benefits to encourage individuals to plan and save for their retirement. NPS is also widely used as one of the major tax-saving investments in India.
National Savings Certificate (NSC)
The National Savings Certificate is a safe investment option that offers tax benefits. It is a good option for investors who are looking for a long-term investment with guaranteed returns.
Tax-Saver Fixed Deposit Scheme
Tax-Saver Fixed Deposits (FDs) are a type of fixed deposit scheme offered by banks in India that come with tax benefits under the Income Tax Act, 1961. These FDs have a lock-in period of 5 years, during which the deposited amount cannot be withdrawn.
Equity-Linked Savings Scheme (ELSS) Mutual Fund
ELSS Mutual Funds is a type of mutual fund that invests in equity and equity-linked securities. It provides an individual with the potential for capital appreciation along with tax-saving investments.
Life Insurance Policy
Life insurance policies are valuable financial tools that can provide peace of mind for your loved ones and add to your tax-saving investments. These financial instruments do not just help you insure your life but also enable you to build wealth in the long term.
The basic objective of an insurance policy is to protect the goals of the individual in case of his unfortunate demise. This purpose is best accomplished through a pure protection term plan with no investment component. These plans cost a fraction of what you pay for a traditional endowment policy or a money-back plan. A 30-year-old man can buy a cover of Rs.1 crore for 30 years by paying an annual premium of Rs.12,000-14,000 per year. In comparison, an endowment plan offering a cover of Rs.40-50 lakh will cost the buyer almost Rs.4-5 lakh per year.
The life insurance industry wants a separate deduction for insurance policies in the coming budget. But this deduction should be only for pure protection term plans where the cover is at least 200 times the annual premium.
How to Plan Your Tax-saving Investments For The Year?
April 1 is the beginning of the tax-saving season for salaried and non-salaried taxpayers. The purpose of a sound tax-saving investment should not only be to provide tax exemption but also to earn tax-free income.
Rather than waiting for the end of the financial year and opting for ad-hoc tax-saving instruments, it would be a smarter approach to begin investments in the early quarters of the financial year so that taxpayers can get time to plan their investments and avail maximum returns. Factors like the safety of the fund, liquidity and size of returns are the things to consider while zeroing on the right tax-saving investment plan.
Most tax-saving investment plans fall under Section 80C of the Income Tax Act, which makes the taxpayer eligible for exemption of up to a maximum limit of Rs 1,50,000. Investors may choose from options like ELSS (Equity Linked Saving Scheme), Public Provident Fund, Life Insurance, National Savings Scheme, Fixed Deposits, and Bonds.
Post retirement, there needs to be a steady flow of funds to manage your regular expenses as there is no monthly salary flowing into your account. So, what are the options for the elderly?
- Senior citizens can opt for annuity schemes, which ensure the regular flow of money is your account and also lets you save on taxes. One such scheme is the ‘Senior Citizen’s Saving Scheme’ offered by the government, which can be availed by those above 60 at a post office or a bank. Apart from tax benefits under Section 80C, SCSS has the advantage of premature withdrawals.
- Those in their golden years can opt for special annuity products offered by insurance companies like HDFC Life’s New Immediate Annuity Plan, which offers various annuity options.
- Unit Linked Insurance Plans (ULIPs) are a good option for fund generation for retirement as it allow exemption of up to Rs 1.5 lakh on premiums paid under Section 80C, the ability to withdraw tax-free proceeds at maturity under Section 10D.
Tax-saving investments in India for example, play a crucial role in optimizing your financial portfolio while simultaneously reducing the tax burden. Options such as ULIP, FD, PPF, ELSS, and NSC offer effective ways to save on taxes and achieve long-term financial goals. However, it is essential to assess your financial needs, risk tolerance, and investment horizons when selecting the most suitable tax-saving instruments. Ultimately, making informed choices can lead to a more secure financial future while minimizing tax liabilities.
