Introduction: Discover the most effective tax-saving investment avenues in India, designed to provide financial security and maximize deductions under Section 80C of the Income Tax Act, 1961. This guide explores the features and benefits of Public Provident Fund (PPF), National Pension Scheme (NPS), Unit Linked Insurance Policies (ULIPs), Equity Linked Savings Scheme (ELSS), and Tax Saving Fixed Deposits.

1. Public Provident Fund (PPF)

PPF scheme is a long term investment option that offers an attractive rate of interest and returns on the amount invested with a minimum lock-in period of 15 years.  One has to open a PPF account under this scheme and the amount deposited during the year will be allowable as deduction. The interest earned and the amount receivable on maturity is also exempt from income tax.

2. National Pension Scheme (NPS)

The NPS is a good scheme for anyone who wants to plan for their retirement early on and has a low-risk appetite. In this scheme, the subscribers can make a regular contribution to the account during their working life and can avail the benefit of the regular annuity after retirement. NPS has a minimum lock-in period of 5 years. The NPS invests in different schemes, and one of the schemes is investing in equities. The contribution made towards this scheme can be claimed as deduction.

3. Unit Linked Insurance Policies (ULIPs)

ULIPs are insurance policies which offer dual benefits of wealth creation and life insurance protection. In ULIPs, a part of the premium is dedicated towards the Life Cover and the rest is assigned to a common pool of money, called fund, which invests in equity, debt, or a combination of both. ULIPs don’t offer withdrawal till the end of the lock-in period of 5 years. The ULIP premium payments are eligible for tax deductions and the maturity benefit is also tax free, if the annual premium remains below Rs. 2.5 Lakhs.

4. Equity Linked Savings Scheme (ELSS)

ELSS is a kind of mutual fund scheme that primarily invests in the stock market or equity in a specific proportion according to the investment objectives of the fund. An ELSS is an equity-oriented scheme with a mandatory lock-in period of 3 years. Regular investing is hassle-free and convenient in ELSS funds through a monthly Systematic Investment Plan (SIP). Investment in ELSS funds gives the twin benefits of tax deductions and wealth creation.

5. Tax Saving Fixed deposit (FD)

Tax Saving Fixed deposit (FD) is a type of fixed deposit under which one can invest and claim deduction on such investment. This has a minimum lock-in period of 5 years.

The said investments are eligible for deduction from gross total income of the taxpayer under Section 80C of the Income Tax Act, 1961 with a maximum limit of Rs. 1.5 lakh every year.

Conclusion: Choosing the right tax-saving investment is crucial for financial planning. Explore these top 5 options – PPF, NPS, ULIPs, ELSS, and Tax Saving FD – to secure your future while optimizing tax deductions. Diversify your portfolio and enjoy the dual benefits of wealth creation and tax savings.

Author Bio

Qualification: Student - CA/CS/CMA
Company: Sudhir Sunil & Co.
Location: East Delhi, Delhi, India
Member Since: 14 Jan 2024 | Total Posts: 3

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February 2024