Tax oriented investments have become increasingly popular among investors in India. With rising income tax rates, individuals and businesses are looking for ways to reduce their tax liability and maximize returns. This article provides an overview of some of the most common tax saving investment options available in India that can help individuals and businesses save on taxes.
ELSS or Equity Linked Saving Schemes are a popular tax saving mutual fund investment
ELSS or Equity Linked Saving Schemes are equity mutual funds that provide tax benefit under Section 80C of the Income Tax Act. Investors can claim a deduction of up to Rs 1.5 lakh in a financial year by investing in ELSS funds, making it a popular tax saving investment choice. Compared to other 80C instruments like PPF and NSC, ELSS has the shortest lock-in period of 3 years. ELSS funds also provide high growth potential through equity investments.
PPF or Public Provident Fund is a risk-free long term tax saving investment option
PPF or Public Provident Fund is a retirement savings instrument backed by the Indian government that offers guaranteed tax-free returns. The current interest rate on PPF is 7.1% per annum with a tenure of 15 years. Individuals can invest up to Rs. 1.5 lakh in PPF each year and avail Section 80C deduction. PPF also allows partial withdrawals and loans against deposits. The maturity amount and interest earned is completely tax-free.
Health insurance premiums up to Rs. 25,000 offer tax benefit under Section 80D
Premiums paid on health insurance policies for self, spouse and dependent children are eligible for tax deduction under Section 80D of the Income Tax Act. For individuals below 60 years of age, the maximum deduction is Rs 25,000. For senior citizens, an additional deduction of up to Rs 50,000 is available. Having adequate health insurance coverage provides financial security as well as helps reduce tax liability.
Investments in tax saving fixed deposits of up to Rs. 1.5 lakh qualify for 80C deduction
Many banks and NBFCs offer tax saving fixed deposits with a lock-in period of 5 years. The interest earned and maturity proceeds are taxable. However, the principal investment amount up to Rs. 1.5 lakh can be claimed as deduction under Section 80C. These FDs offer guaranteed returns and ensure capital protection, making them a safe tax saving choice for conservative investors.
Tax oriented investments should be a part of one’s overall financial planning to maximize returns and reduce tax liability. Choice of investment should be based on specific needs and risk appetite. Consulting a financial advisor can help identify the right mix of tax saving options.