Tax Saving Investments: Easy & Efficient tax saving investments options

You might know that Section 80C allows you to save up to Rs.1.5 Lakh per annum by investing in tax saving instruments. However, returns on the amount saved depends on the tax saving scheme you choose. Mutual funds are easy tax saving options.

List of Tax-Saving Investments under 80C

There are a plethora of tax-saving investment options available in the market and it’s easy to get confused! So, we decided to enlist the best tax-saving investment options under 80C Income Tax Act, 1961. You can compare and choose the saving scheme as per your risk appetite and preferences.

• Equity Linked Saving Scheme (ELSS)

Equity Linked Saving Scheme is an equity-linked tax-saving scheme that gives the dual benefit of tax saving and comparatively high returns than other tax-saving schemes. As it is an equity-oriented product, the ELSS is susceptible to market volatility and the returns may vary with the market performance. Despite this, the ELSS comes out as the best tax-saving investment option, in the context of returns and offer returns ranging 15%-18%.

Also, the ELSS has the shortest lock-in period that allows the investors to re-invest the returns received on maturity of ELSS scheme, further allowing the investment to grow. Anyone who is looking for tax-saving and building wealth correspondingly can opt for ELSS tax-saving scheme as it is eligible for the tax deduction of up to Rs. 1,50,000 under Section 80C, Income Tax Act, 1961.

• Public Provident Fund (PPF)

The PPF is a tax-saving investment instrument and a statutory scheme of the Central Government of India. The scheme comes with the lock-in period of 15 years and has offered returns ranging between 8%-10% that are fully tax exempted. One can contribute to a minimum amount of just Rs. 500 and can go up to maximum Rs. 1,50,000 in a year. The PPF scheme is eligible for a tax deduction of up to Rs. 1,50,000 under Section 80C IT Act, 1961.

• National Pension System (NPS)

The National Pension System (NPS) is one of the tax-saving investment options like PPF where the citizens of India whether resident or non-resident can join NPS. However, to join NPS, the citizen should be between 18 and 60 years. Any contribution to the National Pension System receives tax exemption under Section 80C of Income Tax Act, 1961.

From the year 2016, the investors also offered an additional tax benefit of up to Rs. 50,000 under Section 80CCD(1b) along with existing up to Rs. 1,50,000 exemption under 80C. Unlike ELSS and PPF, one cannot make any withdrawal in NPS before retirement as the NPS comes with a lock-in period of til retirement.

• National Savings Certificate (NSC)

National Savings Certificate is another tax-saving investment option and a fixed income investment scheme by the Government of India that encourages the small to mid-income investors to make investments and save on income tax. It is like PPF, NPS, and ELSS eligible for tax deduction up to Rs. 1,50,000 under the Income Tax Act, 1961 and offer fixed returns of 8%. The NSC scheme comes with a lock-in period of 5 years and anyone who is looking for a tax-saving option to save taxes while earning a steady income can opt for this scheme through the post-office.

Anyone can start investing in NSC as small as Rs. 100 and use the NSC as collateral to Banks and NBFCs for loans.

• Fixed Deposits (FDs)

Bank Fixed Deposits is one of the tax-saving investment options that offer guaranteed returns on investment with the security of the investment as the entire investment amount is locked-in up to the entire tenure. Anyone who has low-risk appetite can invest in banks’ fixed deposit schemes for 5 years.

However, one can only invest in a one-time lump-sum payment which is now allowed for pre-mature withdrawal.

Comparison table:
TAX SAVING INVESTMENT OPTIONS UNDER 80C

Reference: https://www.paisabazaar.com/mutual-funds/best-elss-funds-for-saving-tax/

Why you should plan your taxes through mutual fund investments

What are Tax-Saving ELSS Mutual Funds?

Equity Linked Saving Scheme (ELSS) is a tax saving fund scheme that invests only in equity and equity-related securities. The risks associated with the ELSS funds are similar to the equity funds as they both invest in the equity markets. Despite, the ELSS mutual fund provides the dual benefit of tax saving and relatively higher growth potential compared to other tax saving schemes under Section 80C IT Act, 1961.

Why should you invest in ELSS Mutual Funds?

With so many options out there, it is not easy to choose the right tax-saving investment option to invest in. It is simply because everyone has different financial goals in life. However, what’s important is to understand that such investments are not only to save tax, but also to accumulate wealth and beat inflation over the long-term.

There are several tax-savings investment options that help with tax exemption under Section 80C and wealth accumulation like FD, PPF, NSC, and NPS but none of them can compete against the ELSS mutual fund which stands out with its dual-benefit – tax exemption and comparatively higher returns than other tax-saving instruments.

There are several benefits of investing in ELSS mutual funds which are as below:

• The investments made in the ELSS tax saving funds are eligible for tax deduction up to Rs. 1,50,000 under Section 80C of the Income Tax Act, 1961.
• Long-term capital gains (LTCG) on ELSS tax-saving funds of up to Rs. 1,00,000 are non-taxable.
• The ELSS mutual fund comes with the 3-years locking period which is lowest among all other instruments eligible for tax-saving under Section 80C IT Act, 1961.
• Being an equity-oriented product, the returns on ELSS mutual funds are market-linked but if look at the past performance then the ELSS funds have offered the returns ranging between 15-18% makes it more reasonable for you to invest in an ELSS tax-saving mutual fund.
• One can invest in ELSS tax-saving fund through Systematic Investment Plan (SIP) in an amount as low as Rs. 500 and take advantage of market volatility through rupee-cost-averaging.

ELSS tax-saving fund can provide you with the capital growth that you needed to achieve your certain financial goals. Since they invest in equities and equity-related securities, the ELSS funds can help you generate high returns and beat the inflation in the long-term.

Who should invest in ELSS Mutual Funds?

Anyone who is paying taxes to the government should consider investing in the equity-linked saving schemes (ELSS) as these are one of the tax-saving investment options under Section 80C eligible for a tax deduction of up to RS. 1,50,000 and offer comparatively higher returns than other tax-saving investment options such as National Pension System (NPS), Public Provident Fund (PPF), National Savings Certificate, and Fixed Deposits (FDs).

Also, those who are planning to invest in equity mutual funds primarily for wealth creation should consider ELSS tax-saving schemes as well. It is because of the similarity in the nature of both investment options - both are equity-oriented and susceptible to market volatility. But, in the case of ELSS, you’ll have the tax exemption benefit of up to Rs. 1,50,000 that is not available in common mutual fund investment schemes.

Conclusion

ELSS enables tax savings and helps you convert your tax saving instrument into a high return investment. Start your SIP by investing in mutual funds ; the easiest and famous tax planning option.