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Benjamin Franklin said once, ‘There are just two things certain in life: Death and Taxes.’ There is not much we can plan for the former. But as for the latter, you can certainly plan and find an effective way to know how much you pay every year.
As the financial year's end approaches, it's crucial to make informed decisions about tax-saving investments before the March 31 deadline, especially for those opting for the old tax regime. Simply allocating funds randomly to any tax-saving option is not advisable.
Below mentioned are a few of the tax saving investment options, investing on which can help you save maximum taxes and build a strong financial future. By carefully considering these options and aligning them with your financial goals and tax-saving needs, you can optimize your tax-saving investments effectively before the deadline. Consulting with a Tax2win tax expert can provide valuable insights tailored to your specific circumstances.
Here's a strategic approach to make the most of available options:
| Tax Saving Investment | Returns | Lock-in Tenure |
|---|---|---|
| ELSS Fund | Not Fixed | 3 years |
| National Pension Scheme (NPS) | 9% to 12% | Till Retirement |
| Unit Linked Insurance Plan (ULIP) | Not Fixed | 5 years |
| Public Provident Fund (PPF) | 7.1% (as of today) | 15 years |
| Sukanya Samriddhi Yojana | 7.6% | 21 years or till marriage |
| National Savings Certificate | 6.8% | 5 years |
| Senior Citizen Saving Scheme | 7.4% | 5 years |
| Bank FDs | 5.5% to 7.75% | 5 years |
Note: NPS has a separate section 80CCD(1B) that allows an additional deduction of Rs 50,000 over and above the Rs 1.5 lakh limit of section 80C.
The equity-Linked Saving Scheme is a tax-saving investment option under Section 80C that has two features: First, the investment amount under the ELSS scheme is allowed for tax exemption up to the maximum limit of Rs.1.5 lakh. Second, the Equity-Linked Saving Scheme investment has a lock-in period of 3 years.
The interest rate offered by the ELSS funds is approximately between 5%-18% (The interest rate offered by the ELSS funds is not fixed and depends on the market performance of the underlying equities). The returns received are not constant in an equity-linked saving scheme as they vary per the fund's market performance.
This tax-saving investment scheme offers liquidity and flexibility in investment and is best suited for those ready to take risks.
The returns received from ELSS are subject to long-term capital gains tax (LTCG) at 10% if the gain exceeds Rs. 1 lakh in a financial year. However, a top ELSS fund in one period need not be the best for the next period too. The best ELSS fund should be selected for its performance across the bull and bear market phases.
Moreover, one can track one's investment in the ELSS online simply and hassle-free.
As per the Pension Funds Regulatory and Development Authority (PFRDA), the National Pension Scheme is designed to help individuals save for retirement. National Pension Scheme (NPS) is for both government and private employees. Any age group from 18-70 years can participate in the NPS program.
NPS is a good tax-saving investment option, as fund management charges are pretty low. Fund management is done under four accounts in the NPS scheme: equity, corporate bonds, government securities, and alternative investment fund (AIF) that invests in assets such as venture capital, private equity, real estate, etc. These four accounts help investors manage their portfolios actively or passively.
There is a tax deduction of Rs. 1,50,000/- for self-contribution to NPS, which is covered under Section 80C. Under Section 80CCD(1B), an additional deduction of Rs. 50,000 is allowed against contribution to NPS. Therefore, this scheme provides a tax benefit of up to Rs. 2 lakh.
Employer’s NPS Contribution is covered under section 80CCD(2) of the Income Tax Act.
Unit Linked Insurance Plan is the most versatile tax-saving investment option as it allows you to invest in debt, equity, or both, according to your requirement and risk appetite. Therefore, investing in insurance is beneficial in terms of both investment and saving.
Insurance provides financial security for the whole family and a tax-free lump sum amount on maturity. The premium paid towards purchasing a life insurance policy qualifies for a deduction of up to Rs. 1.5 lakh under section 80C of the Income Tax Act. Furthermore, the final amount received on maturity is tax-free as per Section 10(10D) of the Income Tax Act.
PPF is a very commonly heard term among taxpayers. PPF falls under the exempt tax status, hence the reason for its popularity. PPF accounts can be opened with a bank or post office. PPF accounts can be opened with a bank or post office, but they can also be transferred from one branch to another or from post office to bank and vice versa.
The amount invested during the financial year for the PPF qualifies for a deduction of up to Rs.1.5 lakh under section 80C of the Income Tax Act. The interest and the maturity amount are exempt from tax under section 10 of the Income Tax Act. The PPF account lock-in tenure is 15 years.
Sukanya Samriddhi Yojana is one of the essential tax-saving investment options. Launched under the government’s “Beti Bachao, Beti Padhao” campaign, SSY focuses on improving girl-child life. The scheme allows the taxpayer to deposit some amount in the account regularly and earn interest simultaneously. Sukanya Samriddhi Yojana also qualifies for deductions up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. The minimum amount is Rs.250, and the scheme matures 21 years or till the girl child gets married, whichever is earlier after the account opening.
Interest accrues on the SSY Account, which gets compounded annually, is eligible for tax exemption under section 10(11A) of the Income Tax Act.
Maturity proceeds or any withdrawal amount is also exempt from tax under section 10(11A) of the Income Tax Act.
National Saving Certificate is a fixed-income investment scheme that is aimed at small- and middle-income investors. NSC is a good tax-saving investment option as the risk is low and is as secure as the provident fund. Moreover, the investment in NSC qualifies for a deduction of up to Rs. 1.50 lakh under Section 80C of the Income Tax Act.
The interest earned is also added back to the initial investment and is eligible for tax exemption.
The features of the NSC tax-saving investment option are as follows:
As the name suggests, the Senior Citizen Saving scheme is available to senior citizens who are residents of India. This scheme offers one of the highest rates among the various saving schemes. Although this scheme's lock-in period is five years, the depositors can extend the maturity period by another three years. Moreover, the depositors can make investments with a minimum amount of Rs.1000 and multiples thereof.
The Senior Citizen Saving Scheme investment qualifies for a deduction of up to Rs. 1.50 lakh under Section 80C. The interest on such deposits is taxable and liable for tax if the interest exceeds Rs. 50,000.
Fixed deposits are considered one of the risk-free tax saving investment schemes. The bank decides the interest rate on a minimum lock-in period of five years. In the scenario of a joint account, the primary holder can avail of the benefit of tax deduction while calculating the taxable income. Additionally, senior citizens get the maximum benefits from a higher interest rate on investment. Premature withdrawal is not allowed in the tax-saver bank fixed deposits.
Investors can claim a maximum deduction of Rs. 1.5 Lakh by investing in a tax-saving FD A/c.
Below are the tax-saving investment options other than Section 80C that help you increase annual savings.
| 80TTA | Interest earned from Saving Accounts Deposits under 80 TTA |
| 80E | Interest paid toward the repayment of the Education Loan |
| 80D | Premium paid toward the Health Insurance Policies or incurred medical expenses in case of senior citizens |
| 24(b) | Interest Paid toward Home Loan |
| 10(10D) | Payouts on the maturity of the Life Insurance Plan |
| 10(13A) | Exemption of House Rent paid (if mentioned in salary break-up) |
| 80GG | Deduction of House Rent paid (if not mentioned in salary break-up) |
| 80G | Donations made to Charitable Institutions |
| 80GGA | Donations to Scientific Research and Rural Development |
| 80GGC | Donations to Political Parties |
| 80DD | Medical expenses for the disabled person |
| 80U | Flat deduction for disabled person on the basis of severity of disability |
| 80DDB | Individuals Diagnosed With Specific Diseases or Disability |
| 80TTB | Interest earned on deposits by Senior Citizens |
All taxpayers can avail of a tax deduction on the interest generated from savings account deposits within limits. This interest can be from savings accounts in banks, post offices, or accounts in cooperative societies involved in the banking business. This tax-saving investment option is for ordinary taxpayers, not senior citizens.
The maximum deduction limit is Rs. 10,000 under this section, which includes the interest earned from all the savings accounts one has. Beyond this limit, any interest earned will be taxable.
Under Section 80TTB, the benefit of the least tax implication on interest income is provided for a senior citizen. Under this section, a deduction up to Rs. 50,000 or an amount from a particular income is allowed from the total gross income.
Under Section 80E, students who take education loans to fulfill their education dreams are offered a tax exemption on the interest repayment. There is no cap on the deduction to be claimed. Tax deduction claims can be made from the start of the year when the payer starts paying the interest on the education loan and within the seven immediately subsequent financial years or until the interest is completely paid, whichever is earlier.
The total taxable income towards the premium paid on Health insurance and expenses incurred towards healthcare is allowed for tax deductions under Section 80D. The limit to claim this deduction depends on the taxpayer’s family situation:-
| Eligibility | Exemption limit |
|---|---|
| Health insurance for self and family (spouse and dependent children) | Rs. 25,000 |
| For self and family + parents | Rs.25,000 + ₹25,000) = Rs.50,000 |
| For self and family (below 60 years) + Parents above 60 years of age | Rs.25,000 + Rs.50,000 = Rs.75,000 |
| For self and family (with members above 60 years) + senior citizen parents | Rs.50,000 + Rs.50,000) = Rs.1,00,000 |
Under Section 24 (b), interest payments toward home loans can be claimed. The maximum limit that a taxpayer gets on the interest payment of a home loan is Rs. 2 lakhs if the house property is self-occupied.
Further, in those cases where the home loan taken for the property is not self-occupied but instead is rented, there is no limit on maximum tax deductions. A deduction can be taken on the whole interest amount.
As per section 10(10D), all the incomes received from a life insurance plan upon maturity, surrender, or death of the policyholder are tax-free.
If there is no HRA added to your salary break-up because you work in some small, medium-sized companies. In this case, you can claim deductions on the rent paid for furnished/unfurnished accommodation as per Section 80GG. The same rule applies to self-employed people, too. The conditions to claim the deductions are:-
The amount of deduction under this provision exempts up to the lowest value of the listed parameters:
Hence, the maximum deduction allowed during the year is ₹60,000.
Under Section 10(13A) Income Tax Act offers tax benefits in the minimum value of the following:-
In the above calculations, DA will be considered if it forms a part of retirement benefits.
Deductions can be claimed for the donations made to approved charitable institutions under Section 80G of the Income Tax Act. The condition is that the donation should have been made by any mode other than cash, as cash donations exceeding Rs. 2,000 do not qualify as deductions.
Further, to claim this deduction, a taxpayer needs a stamped receipt from the institution they have made the donation, with details of the name of the trust, address, PAN Number of the Trust, the amount of donation, etc.
Taxpayers can claim deductions under Section 80GGA for the donations made for scientific research and rural development. There is no cap, and 100% of the income spent is eligible for the deduction, provided the transaction is made via a bank account if the donation exceeds Rs. 10,000/-.
Under Section 80GGC, the entire income spent on the donation towards political parties is waived off from tax calculations, provided the transaction is made via a bank account. Also, the political party to which the donation is made must be registered under Section 29A of the Representation of People Act (RPA) of 1951.
Under Section 80DD, individuals and Hindu Undivided Families (HUF) can claim deductions of the amount spent for the treatment and well-being of a disabled dependent family member. However, this claim is offered only to the legal family of such dependent individuals.
Based on the percentage of disability, if people have 40-80% disability, they can claim a deduction of up to Rs. 75,000.
If people have disabilities, more than 80% can, they claim up to Rs. 1.25 Lakh inclusive of all related expenses.
Under Section 80U, the disabled individual can claim tax deductions if a registered medical authority documents the disability with a minimum 40% impairment.
If the disabled individual has 40-80% disability, they can claim a deduction of up to Rs. 75,000.
If individuals have disabilities of more than 80%, they can claim up to Rs. 1.25 Lakh inclusive of all related expenses.
Under Section 80DDB, individuals can claim exemptions on subsequent income spent on the treatment of dependent family members diagnosed with specific diseases. These critical illnesses include neurological disorders, AIDS, chronic renal disease, malignant cancers, and hematological ailments. For individuals below 60, a maximum of Rs. 40,000 is disbursed, and the same increases to Rs. 1 lakh for senior and super senior citizens.
Senior citizens take a heavy charge on their finances because of the expenditure on medical expenses. Relaxation from tax deductions helps senior citizens to simplify their lives. Under Section 80 TTB, senior citizens aged 60 years and above can claim Rs. 50,000 or a specified amount as a deduction from their gross total income for that fiscal year.
It's essential to consult with a tax expert or financial advisor to tailor these strategies to your specific financial situation and goals. They can provide personalized advice and help you make informed decisions to optimize your tax-saving investments. Hire a tax expert today.
Individuals can invest in as many tax-free investments as they want because there is no limit.
The tax deduction can be claimed while filing ITR for the respective financial year.
The maximum limit is capped at 1,50,000 from the total taxable income.
Tax can be reduced legally by investing in government-approved tax-free investment instruments.
To maximize the refund, you can invest in the following tax-saving investment options:-
