Investments that help save on Income Tax

Many investments help in saving the amount of income tax paid. Tax saving investments are a result of numerous saving options like ELSS Schemes, Fixed Deposits and more.

Due to misinformation, most Indians pay way above the required amount of income tax. Many investments and expenses are eligible for a tax claim. The tax-free limit is 1.5 lakh rupees per financial year. This limited amount is deducted from the taxable income.

Here are a few investment options that can save you on the payable Income Tax.

  • Equity Linked Savings Scheme
  • Public Provident Fund
  • Unit Linked Insurance Plan
  • 5-Year Tax Saving Fixed Deposit

Equity Linked Saving Scheme (ELSS): This is the best long-term investment option for tax savings. This investment is equity schemes which have a relative market risk like mutual funds. An investment in ELSS schemes has a three year lock-in period. ELSS have an average 15% to 18% returns which is twice as much as returns from a Bank’s Fixed Deposits.

The investment options with these schemes are growth, dividend and dividend reinvestment options. The growth option is a cumulative investment that grows until maturity. The dividend option provides tax-free profits, periodically. And the reinvestment option adds the dividends to the payout.

Public Provident Fund (PPF): This is a remarkable savings options. With PPF, a tax-free investment can amount up to 1.5 lakhs rupees. The interest rates currently offered is ranged 7% to 8% rate. This investment has a lock-in and maturity period of 15 years. Premature withdrawal is possible after five years.

A Provident Fund account can be opened in an individual’s name or a minor by the parent or guardian. The minimum amount for a provident fund is Rs. 500. The maximum limit is 1.5 lakh rupees per financial year. This limit range is the same for the individual’s and minor’s account.

Unit Linked Insurance Plan (ULIP): This plan is a product provided by an insurance firm. ULIP gives a dual market risk cover benefit. The premium is used for insurance coverage and also invested in other financial options. Investors can choose the investment type based on their budget, requirements and suitable market risk.

The premium goes through a Net Asset Value (NAV) allotment that is subject to change daily depending on the market. This investment benefits provide tax-free returns and surrendered charges after five years are zero. With premature withdrawal, the surrendered charges are payable to the policyholder with a percentage of the fund.

5-Year Tax Saving Fixed Deposit (FD): This is the most common investment option in India. Individuals can open an FD account at the bank or online. For those who require a regular periodic income, Fixed Deposits provide better interest rates than a savings bank account till the maturity period.

Under Section 80C, banks offer a 5-year fixed which is a tax saving plan to eligible customers. Premature withdrawal is not allowed with FDs. And the current offered interest rate is 6% to 7%.