Tax saving is a crucial part of your financial planning. Designing a prudent strategy and choosing the best investment plan to save tax can provide dual benefits, i.e., allow you to save money and achieve your financial goals. Here are some of the best tax-saving options that can assist you in maximising your tax benefits.
Best investment options for tax benefit
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Equity Linked Savings Scheme (ELSS)
ELSS (Equity Linked Savings Scheme) is a mutual fund scheme that qualifies for tax benefits despite being an equity fund. It is a diversified fund scheme with two distinct features. First, the investment amount in ELSS qualifies for a tax deduction of up to Rs 1.50 lakh as per Section 80 C. Secondly, ELSS investment has a lock-in tenure of three years which is shorter compared to other tax saving options available.
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Fixed deposit (FD)
You can save tax by opting for the tax saver FD option, which fetches a deduction on tax as per Section 80 C. You can claim a tax deduction of up to Rs 1.50 lakh by investing in a tax-saver fixed deposit. There’s a lock-in of five years for such fixed deposits, and the interest earned is taxable as per your tax slab.
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Public Provident Fund (PPF)
Public Provident Fund (PPF) is a popular investment product for tax saving. It is a long-term investment product, which you can open by approaching any post office or designated public or private sector financial institutions. Contributing to your PPF account allows you to earn an assured interest return. You can claim tax deductions of up to Rs 1.50 lakh as per Section 80 C. The PPF account has a lock in period of 15 years from the time of opening.
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ULIP (Unit Linked Insurance Plan)
ULIPs are long-term investment options that permit you to partly invest in an insurance plan and partly invest in the market, i.e., debt fund, equity fund, or both. ULIPs provide flexibility; you can switch between distinct funds in alignment with your life goals. By investing in ULIPs, you can save as per Section 10 (10 D) and 80 C.
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National Pension System (NPS)
NPS is one of the best tax-saving investment options that offer tax exemption under three critical sections. Your contribution of up to Rs 1.50 lakh can qualify as a tax deduction per Section 80 C. Under Section 80 CCD (1b), you can get an additional tax deduction on NPS of up to Rs 50,000. Lastly, the returns are not taxed if your employer contributes 10 per cent of your basic income in NPS.
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Sukanya Samriddhi Yojana (SSY)
Sukanya Samriddhi Yojana is a small deposit scheme specifically designed for female children. This plan was introduced as a part of the campaign ‘Beti Bachao, Beti Padhao’. Your investment in this scheme qualifies for a tax exemption of up to Rs 1.50 lakh as per Section 80 C.
There are various tax-saving options through which you can save your tax. Ensure you’re updated and informed, as this would allow you to select a better investment option that best matches your risk appetite and tax-saving goals.