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10 Tax Saving Investment Options in India

Smart tax planning helps you save money and achieve financial goals. For 2024, top tax-saving investments include life insurance, pension plans, health insurance, National Pension System (NPS), and tax-saving mutual funds. Each offers benefits under specific tax sections. By choosing these options wisely, you can reduce your taxes while growing your wealth for the future.

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10 Tax Saving Investment Options in India

Best Tax Saving Investment Options

Best Tax Saving Investement Options in 2022 (FY 2022-2023)
July 26, 2024

Table of Content

 

Tax-saving is an important part of financial planning. An intelligent tax-planning strategy can serve the dual objective of helping individuals meet their financial goals and save tax in the process.

Here is a list of some of the best tax saving investment options and plans for 2024 that can help individuals maximize tax benefits:

Sr No. Tax Saving Investment Options Tax Benefit Under Section
1

Life Insurance

 Section 80C (Premium) Section 10(D) (Death / Maturity)
2

Pension Plans

 Section 80CCC(sub-section under Section 80C)
3

Health insurance or Mediclaim

 Section 80D
4

NPS

 Section 80CCD
5

Tax-saving mutual funds

 Section 80C Section 10(D) (Death/Maturity)

Tax saving instruments and sections therein :

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 )

Public Provident Scheme is a popular investment vehicle for saving tax. A long term savings cum investment product, 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, 1961.

4. National Savings Certificate

National Savings Certificates are a savings bond scheme which 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 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 which 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 inthe individual's financial portfolio offeringsecurity to the individual's family in case of an eventuality. This makes it the breadwinner's primary responsibilityto 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.

Premiumspaid 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 policyis surrendered/terminated withinfive years, deductions claimed are added to income and taxed accordingly

  1. Term plans

  2. Endowment plans

  3. ULIPs or unit-linked plans

  4. Money back plans

7. Pension plans

Pension Plans is 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 pensionare 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 death of 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 premium upto Rs 20,000 for senior citizens and Rs 15,000 for others is eligible for tax benefit. If the policyholder pays Rs 15,000 as premium on his own policy and Rs 20,000 for his parent, a senior citizen, he can claim tax benefit of Rs 35,000 (Rs 15,000+20,000). Maturity value is tax free for 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).

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 towards retirement.

10. Tax-saving mutual funds

Investments in tax-saving mutual funds, also known as equity-linked savings scheme (ELSS), qualify for tax benefits. Tax-saving mutual funds invest in stockmarkets, among other assets, and are more suited for investors with 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).

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. When selecting a tax-saving investment plan, consider factors like fund safety, liquidity, and return size. An income tax calculator can help evaluate how investments impact your overall tax liability and financial goals.

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.

Tax saving investment plans for young unmarried tax payers and couples with single income

For individuals who are in their late 20s or early 30s, unmarried or married with only one person contributing towards household expenses, the most-apt tax saving options are:

  1. Equity Linked Savings Schemes (ELSS)
  2. Set aside at least 20% of your annual income for Market-linked investment options with EEE benefits
  3. Unit Linked Insurance Plans (ULIPs)
  4. Public Provident Fund (PPF)
  5. Term insurance cover with a sum assured that is equal to 15 to 20 times of your annual income.

What are the income tax saving plans for parents with single income?

If yours is a single-income household with a child, you need to be prudent in your financial plans to save tax as well as fulfill goals of your family and children.

The plans to choose from include:

  1. At least 20% of your annual income must be allocated to market-linked investment options, which offer EEE benefits. You could choose from Unit Linked Insurance Plans (ULIPs), Equity Linked Savings Schemes (ELSS), Child Plans, among others.
  2. Tax exemption of up to Rs 1.5 lakh under Section 80C
  3. Term insurance cover with a sum assured that is equal to 15 to 20 ties of your annual income.
  4. Public Provident Fund (PPF)

To add to it, children's tuition fees can be claimed under 80C. Any interest on education loan for funding your child's higher education is completely deductible under Section 80E. Up to Rs 1 lakh more can be saved under Section 80D.

Pension funds shouldn't be ignored and at least 10% of annual income must be invested in National Pension Scheme and the likes.

What are the income tax saving plans for parents with double income?

A married couple with double income can claim more than Rs 8.5 lakh in deductions with investments and insurance. The options to consider include:

  1. Up to Rs 3 lakh can be saved under 80C
  2. Opt for term insurance covers individually with a sum assured equal to 15 to 20 times of your annual income
  3. At least 20% of your annual income must be allocated to market-linked investment options, which offer EEE benefits. You could choose from Unit Linked Insurance Plans (ULIPs), Equity Linked Savings Schemes (ELSS), Child Plans, among others.
  4. Public Provident Fund (PPF)
  5. Invest at least 10% of your household income in a pension fund like National Pension Scheme or pension schemes by HDFC Life.

Other tips to save up better for your family

  1. Parents can claim the school fees
  2. Save up to Rs 2 lakh under Section 80D
  3. Start investing in the best child plan
  4. For additional tax savings, you can invest in a property and avail savings on home loan interest of up to Rs 4 lakh
  5. Consider whether you want to invest jointly with your spouse or individually because both spouses can only claim the amount, they have paid towards the housing loan interest.
  6. Don't forget to buy a mediclaim health insurance cover for yourself, spouse and your children.

Tax Saving Investments for Senior citizens and Retired Persons

Post retirement, there needs to be a steady flow of funds to manage your regular expenses as there is no monthly salary flowing in your account. So, what are the options for the elderly?

  1. Senior citizens can opt for annuity schemes, which ensure regular flow of money is your account and also lets you save on taxes. One such scheme is 'Senior Citizen Savings 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.
  2. Those in their golden years can otp for special annuity products offered by insurance companies like HDFC Life's New Immediate Annuity Plan, which offers various annuity options.
  3. Unit Linked Insurance Plans (ULIPs) are a good option for fund generation for retirement as it allows exemption of up to Rs 1.5 lakh on premiums paid under Section 80C, ability to withdraw tax-free proceeds at maturity under Section 10D.

FAQ's about Tax Saving Investments in 2024

  • Do I have to pay taxes on the investments?

    Whether you need to pay taxes depend entirely on the type of investment you are planning for the financial year. Below are few of the investment types you will be levied taxes on:

    a. Capital gains: You will be taxed when you sell some of your investments at a profit.

    b. Tax on interest: To save on this tax you need to careful while investing in funds/products. Some schemes are tax-free but there are times when some interest earned on some products are taxable.

    c. Dividends and other income types: Individuals need to pay interest on dividends in case of profits from selling the investments, rental and other forms of income they receive.

  • How many tax-free investment instruments can one have?

    Individuals can buy as many tax-free investment instruments as they need as there is no limit to it. However, investors must not forget that there is a limit of deduction under which one can claim the tax benefits. To know these limits, you need to refer to different section of the Income Tax Act.

  • What is the maximum limit of investment under Section 80C?

    The maximum limit of investment under Section 80C of the Income Tax Act, 1961 has been capped at Rs 1,50,000 from your total taxable income.

  • How can I reduce my tax legally?

    Individuals can reduce their taxes legally by making investments in the government approved tax-free investment instruments.

  • How can I reduce my taxable income?

    Individuals are always a look out for ways to save on paying tax. Below are the few ways to reduce your taxable income in India:

    a. Claim the expenses you have made to save income tax

    b. Invest in tax-saving instruments listed under Section 80C of Income Tax Act

    c. Avail tax deduction on your housing loan

    d. Money received from life insurance policy upon maturity or while receiving the claim amount is exempt from tax. The general rule is that premium should not exceed 20% of the sum insured for policies issued before 1 April, 2012. For policies post 1 April, 2012, the premium should not exceed 15%

    e. Keep a check on your long-term capital gains as 10% tax is applicable if it exceeds more than Rs 1 lakh

    f. A certain portion of money paid towards health insurance premium  is not taxable under Section 80D. Additionally, premium paid for purchasing health insurance for the elderly can let you save more tax.

  • What deductions can I claim without receipts?

    Although a receipt is preferred for every expense you make and want to claim on your tax return, there are few expenses you might be able to claim if the receipt is lost.

    a. Fuel or petrol expenses if you can explain the number of kilometres you are claiming

    b. Computer items if you can submit credit card statement and a note against it

    c. Stationery items if you can submit credit card statement and a note against it

    d. Membership fees if you have the documentation to prove it.

  • What tax exemptions can I get in India?

    The new tax system, introduced last year and also part of Budget 2023-2024, has been made optional and continues to co-exist with the old/existing regime. There are various tax exemptions and deductions available to a taxpayer under the Income Tax Act. The commonly availed tax-exemptions and deductions include tax exemption on house rent allowance, leave travel allowance, deductions under Section 80C, standard deduction, Section 80D deductions, etc.

  • How can I maximise my tax refund?

    Below are five tips to minimize your tax outgoing and maximising tax refund:

    1. Taxpayers can claim up to Rs 1.5lakh on tax benefits on expenses like housing loan, tuition fees, PPF, National Saving Certificates, ELSS, etc. so maximize your contributions under Section 80C
    2. Avail benefits of Section 80D by claiming deduction on payment of medical insurance premiums, over and above the benefits under Section 80C
    3. Explore tax benefits on home loan under Section 80EE as well of Section 24 of the Income Tax Act.
    4. Tax payers can claim a deduction of up to Rs 10,000 against interest income from any savings account opened at a bank, post office or, co-operative society
    5. You can claim HRA deduction under Section 80GG even if you do not receive HRA from your employer.

To learn more about the income tax slab FY 2023-24, click here.

  • How to save tax other than section 80C?

    Taxpayers can go for tax saving options like pension plans of Life Insurance Companies or  National Pension Scheme  to save additional tax. There is also the possibility to avail tax deductions from the total taxable income towards the payment of Health insurance Plans premiums as well as any healthcare expenses under Section 80D. One can also avail a tax benefit on the repayment of the interest component of an education loan under Section 80E, or claim a tax deduction under Section 24 of the Income Tax Act on the interest component of their home loan.

  • How can I save more tax on my salary?

    Some of the most popular tax saving options are available under Section 80C of the Income Tax Act, where individuals can claim deductions up to Rs 1.5 lakh in a given financial year on various investments and expenses, including home loans, health insurance plans, government schemes and life insurance plans, among others.

  • What is section 80CCD ?

    This particular section is linked to deductions that are available to individuals against contributions made to the National Pension Scheme or Atal Pension Yojana. This benefit also extends to those whose employers make contributions to the National Pension Scheme.

  • What is the maximum deduction under section 80D?

    Section 80D of the Income Tax Act, 1961 allows individuals to claim up to Rs 25,000 per financial year on medical insurance premiums. Another benefit includes a Rs 5,000 deduction on any expenses incurred on preventive health checkups. There is an increased deduction for senior citizens.

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Note- Tax benefits & exemptions are subject to conditions of the Income Tax Act, 1961 and its provisions. Tax Laws are subject to change from time to time. Customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

@Save 46,800 on taxes if the insurance premium amount is Rs.1.5 lakh per annum and you are a Regular Individual, Fall under 30% income tax slab having taxable income less than Rs. 50 lakh and Opt for Old tax regime.

@@Provided all due premiums have been paid and the policy is in force.

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