Best Tax Saving Investment Options in 2023
Benjamin Franklin said once, ‘There are just two things certain in life: Death and Taxes.’ There is nothing much we can plan about 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 2023 is here, we should start planning for tax saving investments from the start of the year only so that we won’t have to rush at the last moment. We at Tax2win are here with you to guide you in saving the maximum taxes. Tax2win has introduced India's first tax saving tool “Tax Planning Optimizer” which guides you step-by-step in saving taxes by planning your investments and savings using recommendations provided by the tool. All taxpayers can use the tool regardless of how much they earn or how complicated their tax affairs are.
Tax saving investment options and plans under Section 80C:
|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||7.60%||21 years|
|National Savings Certificate||6.80%||5 years|
|Senior Citizen Saving Scheme||7.40%||5 years|
|Bank FDs||5.5% to 7.75%||5 years|
ELSS (Equity-Linked Saving Scheme) Mutual Fund
Let us discuss further in detail the tax-saving investment options:-
Equity-Linked Saving Scheme is a tax-saving investment option under Section 80C which 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 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 suitable for those ready to take risks.
ELSS scheme offers a good return on investment if applied for a long-term period and the benefit of tax exemption. 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 their investment in the ELSS online simply and hassle-freely.
National Pension Scheme (NPS)
As per the Pension Funds Regulatory and Development Authority (PFRDA), the New 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 three accounts in NPS scheme:-Equity, Corporate Bonds, and Government Securities. These three ways help investors manage their portfolios actively or passively.
There is a tax deduction of Rs. 1,50,000/- for self contribution to NPS, which covers under Section 80C. Under Section 80CCD(1B) additional deduction of Rs. 50,000 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 Income Tax Act.
Unit Linked Insurance Plan (ULIP)
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 both terms:-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 Income Tax Act. Furthermore, the final amount received on maturity is tax-free as per Section 10(10D) of Income Tax Act.
Public Provident Fund (PPF)
PPF is a very commonly heard term among taxpayers. PPF falls under the exempt tax status, hence the reason for so much popularity. PPF accounts can be opened with a bank or post office.
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 Income Tax Act. The interest and the maturity amount are exempt from tax under section 10 of Income Tax Act. The PPF account lock-in tenure is 15 years.
Sukanya Samriddhi Yojana (SSY)
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 after 21 years of the account opening.
Interest accrues on SSY Account which gets compounded annually is eligible for tax exemption under section 10(11A) of Income Tax Act.
Maturity proceeds or any withdrawal amount is also exempt from tax under section 10(11A) of Income Tax Act.
National Savings Certificate (NSC)
National Saving Certificate is a fixed-income investment scheme that aims 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 Income Tax Act.
The interest earned is also added back to the initial investment and eligible for tax exemption.
The features of the NSC tax-saving investment option are as follows:
- A guaranteed return of 6.8% annual interest.
- A tax benefit of up to Rs. 1.5Lakh
- Investment can be made as low as Rs. 1,000 (or multiples of Rs. 100)
- The investor will receive the entire maturity value, which will be taxed to the taxpayer.
Senior Citizen Saving Scheme
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 5 years, the depositors can extend the maturity period by another 3 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 a 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 is 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.
Tax saving options other than Section80 C
Below are the tax-saving investment options other than Section 80C that helps 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|
Interest earned from Saving Accounts Deposits under 80 TTA
All taxpayers can avail of a tax deduction on the interest generated from saving accounts 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.
Interest paid toward the repayment of the Education Loan
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.
Premium paid toward the Health Insurance Policies or incurred medical expenses in case of senior citizens
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:-
|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|
Interest Paid toward Home Loan
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.
Payouts on the maturity of the Life Insurance Plan
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.
Exemption of House Rent paid (if mentioned in salary break-up)
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 condition to claim the deductions are:-
- Must not have received HRA during any part of the fiscal year
- Should not be possessing any house in the city of occupation
- Individuals should not own a house in the city of occupation in the name of spouse, minor child, or Hindu Undivided Family (HUF) of which the person is a member.
- Owning a house in any other city different from the occupation city is eligible for deductions, but it shouldn’t be self-occupied or left vacant.
The amount of deduction under this provision exempts up to the lowest value of the listed parameters:
- The rent paid more than 10% of the total income
- 25% of the total income after adjustment
- a maximum of ₹5,000 per month.
Hence, the maximum deduction allowed during the year is ₹60,000.
Deduction of House Rent paid (if not mentioned in salary break-up)
Under Section 10(13A) Income Tax Act offers tax benefits in the minimum value of the following:-
- Actual annual rent allowance disbursed by the employer
- 50% of the basic salary plus dearness allowance (DA) if the house is situated in metro cities or 40% of Basic Salary plus DA if the house is situated in other cities.
- Actual rent paid for the house – 10% of basic pay plus DA.
In the above calculations DA will be considered if it forms a part of retirement benefits.
Donations made to Charitable Institutions
Deductions can be claimed for the donations made to approved charitable institutions under Section 80G of 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, and PAN Number of the Trust, amount of donation, etc.
Donations to Scientific Research and Rural Development
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 donation exceeds Rs. 10,000/-.
Donations to Political Parties
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.
Medical expenses for the disabled person
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.
Flat deduction for disabled person on the basis of severity of disability
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.
Individuals Diagnosed With Specific Diseases or Disability
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.
Interest earned on deposits by 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.
Frequently Asked Questions
Q- How many tax-free instruments can you avail?
Individuals can invest in as many tax-free investments as they want because there is no limit.
Q- How can I claim all the tax deductions?
The tax deduction can be claimed while filing ITR for the respective financial year.
Q- What is the maximum limit of investment capped under Section 80C?
The maximum limit is capped at 1,50,000 from the total taxable income.
Q- How can I reduce the tax legally?
Tax can be reduced legally by investing in government-approved tax-free investment instruments.
Q- Which deductions can be claimed without receipts?
- If the receipt is lost, fuel or petrol expenses can be claimed by simply explaining the number of kilometers.
- Computer item expenses can be claimed without receipts if you provide an online statement and a note against it.
- Stationary items expenses can be claimed without receipts if you provide an online statement and a note against it.
- Membership fees can be claimed without receipts if proper documentation has been provided.
Q- How can I maximize my tax refund?
To maximize the refund, you can invest in the following tax-saving investment options:-
- Tax benefits can be claimed on expenses like housing loans, tution fees, PPF, National Saving Certificates, ELSS, etc.
- Tax benefits can be enjoyed on home loans under Section 24 of the Income Tax Act.
- Interest earned from any savings account opened at a bank, post office, or cooperative society can make you eligible to claim deductions up to Rs. 10,000.
- HRA deduction can be claimed even if you are not receiving HRA from your employer.
Note:- There is no information on Google regarding the investment options in 2023, as per the discussion written information as per the data available on Google.
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