What are some of the best Income Tax Saving Schemes in India?

September 28, 2020

What are some of the best Income Tax Saving Schemes in India?

Everyone wants to invest in the best possible scheme or plan to save tax. Based on your risk tolerance level, you can choose a tax-saving plan. Read further to know more. 

 

Paying tax is a prime responsibility of every citizen. Every year, you are required to pay a certain amount of taxes for the nation's growth and development. Your total tax liability is dependent on your total annual income. But this doesn't mean you have to pay the entire tax amount; you also have the right to save on taxes legally as much as possible. This is only possible when you invest in the best Income Tax Saving Schemes. Keeping this thought process, you must know that investments should not be done in haste. It should be based on your flexibility, returns, liquidity, ease of investment and income taxability. Here are some of the best Income Tax Saving Schemes you can apply in India. 

  1. ELSS: Equity-Linked Savings Scheme or ELSS is one the best and popular tax saving plans. Under Section 80C of the Income Tax Act, you can save up to Rs 46,800 in a year. The plan usually has a lock-in period of 3 years, but if you extend the plan for more than five years, it will be considered a long-term investment. Additionally, if ELSS's long-term capital gains are less than Rs 1 lakh in a year, it is tax-exempt. You can start with a minimum investment of Rs 500 per month.
  2. National Pension System or NPS: This is a voluntary tax saving plan. Under this plan, your savings are pooled into a pension fund. The funds are invested by the Pension Fund Regulatory and Development Authority (PFRDA). It consists of investment options like Treasury bills, Government bonds, corporate debentures and shares. In terms of tax savings, you can claim tax deductions of Rs 50,000 under Section 80CCD (1B), over and above the limit of Rs 1.5 lakh, as mentioned under Section 80C of the IT Act. 
  3. Sukanya Samriddhi Yojana: This scheme is especially for the benefit of a girl child. If you have a daughter, you can open an account with a minimum investment of Rs 250 in a year. With this scheme, you can avail of triple tax benefit on the principal amount, interest earnings and maturity amount. All these are tax-free.
  4. Public Provident Fund or PPF: This is yet another Government-backed tax saving plan in India. Offering an attractive interest (7.9% per annum) and returns, PPF is fully tax-exempt. You can make a minimum investment of Rs 500 in one financial year. It is good for the long-term investment of 15 years. 
  5. Tax Saving FDs: For last-minute planning issues, a tax-saving Fixed Deposit is a good choice. This scheme has a lock-in period of five years. The interest earnings are taxable. The maximum rate of interest is 7.7% per annum. As an investor, you can claim a deduction of Rs 1.5 lakh under Section 80C by investing in tax saving FD. You can start with a small investment of Rs 10,000 annually.
  6. Life Insurance: Protection of loved ones' lives is a major financial goal of every individual, but it can also fetch you great tax savings. Whether you have a term insurance or endowment plan or a money-back plan, you can claim tax deductions on premiums you pay for the policy. Under Section 80C of the Income Tax Act, you can save up to Rs 1.5 lakh in a financial year. Additionally, you can opt for income-related policy; then it is tax-free under Section 10(10d).
  7. Senior Citizen Savings Scheme: This is a Government-sponsored tax saving plan with an interest rate of 7.4% per annum. For seniors, this is one of the safest investment options. For SCSS, only Tax Deducted at Source applies to the interest amount earned every quarter. 
  8. National Savings Certificate: This is a fixed investment tax saving plan in India. The maturity can be of five or ten years, depending on your convenience. You get assured returns at the rate of 7.9% per annum. There is no limit on the purchase of certificates, but the tax deduction of Rs 1.5 lakh in a year is applicable under Section 80C of the IT Act.

Tax saving investment should be a well-informed decision. As mentioned earlier, you should select a plan based on various parameters like income, returns, costs, liquidity, etc. 

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