It’s not uncommon to watch taxpayers get all worked-up in choosing the ideal investment options as nobody wants to shell those extra bucks from their pockets. Most investors have a bad habit of procrastinating their tax-saving investments until the last moment. One needs to understand that a tax-saving investment can greatly help in reducing one’s gross tax outgo. Thus, tax-saving investments constitute an intergral part of any investor’s life. As a smart investor, you should seek investments that offer not only tax benefits but also the potential to grow your wealth. Following are some of the best tax saving investments available to an investor under Section 80C of the IT Act, 1961:
Equity Linked Savings Scheme (ELSS)
ELSS mutual funds are a type of mutual funds that invest the majority of their assets, least 80% in equity and equity-linked securities. Investments in ELSS funds are eligible for a tax deduction of up to Rs 1.5 lac u/s 80C. An investor can save up to Rs 46,800 by investing in these ELSS tax-saving mutual funds. However, if you invest in ELSS funds, you should be wary about the mandatory three-year lock-in period. This also happens to be the shortest lock-in period among all Section 80C investments. Thus, investments in ELSS funds provide investors with dual benefits of wealth creation and tax-saving benefits. However, investors should not invest in ELSS with the sole purpose of tax saving.
Unit Linked Investment Plan (ULIP)
ULIPs are another Section 80C investments that not only provides tax-saving benefits but also offers the potential to earn higher returns when invested for a longer duration. These investment products offer a combination of life insurance policy and investment opportunities in a single fund. These funds offer the investors with the flexibility to switch between funds about 3 to 4 times in a particular financial year. Investments in ULIP are also eligible for a tax deduction of up to Rs 1.5 lac.
Senior Citizen Savings Scheme (SCSS) – SCSS is a savings scheme backed by the Indian government which is available to Indian investors who are 60 years old and above. The maturity of these savings scheme is 5 years. Note that, one can extend it by three years. The interest rate on these savings scheme is declared by the government at the time of buying the scheme. SCSS offers one of the highest interest rates in contrast to different savings schemes available in India. Just like any other section 80C investments, SCSS also offers a tax deduction of up to Rs 1.5 lac.
Public Provident Fund (PPF)
PPF is a long-term tax saving investment offered by the Indian government that aids to create a financial cushion for investors post their retirement. The interest rate on these accounts are set and revised quarterly. PPF accounts reap the benefits of an EEE status, i.e. exempt, exempt and exempt. This means that the sum invested, the interest earned, and the maturity amount earned from PPF investments are all exempt from tax.
National Pension Scheme (NPS)
NPS is a retirement-focused security that matures when an investor is 60 years old. NPS investments are mandated to invest a maximum of 75% of their assets in equity mutual funds and the remaining in debt funds. Investments in NPS enjoy tax benefits of up to Rs 1.5 lac under Section 80C. An investor can also avail additional tax benefits of up to Rs 50,000 under sub-Section 80CCD (1B) of the IT Act, 1961.
Irrespective of the tax-saving investment you pick for your portfolio, ensure that it aligns with your financial objectives, risk appetite and investment horizon. Happy investing!
