Filing taxes can feel no less than warfare: you win with strategies, you lose with deferment. A fairly common problem among the taxpayers is a lack of efficient investment options to save taxes.
A smart move is to of course, plan your taxes and end up with more savings. It is imperative for investors to explore different tax saving investment options.
Some of the factors that come into play while choosing such investments are liquidity and returns since certain returns are also taxable.
If the investment income is taxable, it turns into a tax liability in the long term. An ideal tax-saving investment should have a minimal risk and low cost.
Good options for tax saving investments offer you returns that add up to a total income within the exemption limit. There are also tax savers that have an exempt-exempt-exempt (EEE) status.
As per Section 80C of the Income Tax Act 1961, the income earned through these investments is exempted of any taxes.
Here are 5 best tax-saving investments that offer a tax-free return
ELSS Tax Saving Mutual Funds
An Equity-Linked Saving Scheme (ELSS) is a Mutual Fund investment. It is specifically designed for the purpose of saving taxes via mutual funds.
ELSS funds offer tax-free returns because of the exemption of taxes on gains from long-term equity funds.
The dividends, however, are subject to a 10% dividend distribution tax.
Therefore, the growth option is preferable if you’re looking for tax-saving gains. Sbi mutual fund investment offers multiple ELSS investments as tax-saver instruments.
Since the scheme involves market risks, it is recommended to diversify your funds across multiple ELSS investments.
The lock-in period for this investment is 3 years.
It is imperative to review the long-term performance of any fund you are considering investing in. The fund’s stability is more important than its returns in this case.
Public Provident Fund
The Public Provident Fund (PPF) Scheme is a long-term investment with assured returns free of taxes. Despite it slashing rates, the PPF is positioned as a good tax-saving investment today.
Advisers recommend a PPF investment due to its tax-free interest returns. This is, in fact, what gives it an edge over fixed deposits.
It is a 15-year scheme with the option for an indefinite extension after 5 years. The lack of volatility in PPF returns, as opposed to equity assets, also makes it a preferred option for the investors.
Furthermore, this investment option assures you of safety and flexibility of investing. While salaried taxpayers can opt for Employees’ Provident Fund (EPF), PPF is a feasible investment option.
Unit Linked Insurance Plan
Also known as ULIP, a Unit Linked Insurance Plan offers a combination of insurance and investment. As a smart replacement for the traditional insurance plans, a ULIP has twofold benefits for investors.
On top of providing financial aid in times of any mishap, it offers a channel between your savings and market assets for the long term.
With a duration length of 15-20 years or more, a ULIP has a tax-free maturity value.
In comparison to the traditional life insurance policies, ULIPs are flexible. As is the case in the former, investors cannot avail partial withdrawals and must wait until the plan matures.
ULIPs, on the other hand, have a specified lock-in period of 5 years. Even if you wish to switch from equity to debt, there are no effects on the tax exemptions.
You can compare the SBI Mutual Fund with ULIPs to find the better option.
National Savings Certificate
Initiated by the Government of India, the National Savings Certificate (NSC) is an investment scheme for fixed income.
It functions as a savings bond alongside acting as a tax-saver. Despite a reduction in its interest rates, NSC offers more than fixed deposits.
Its sovereign backing also gives it a distinct advantage. The returns from NSC funds are deductible as per Section 80C.
Investors under the 5% bracket can especially benefit from this deductible income. A smart strategy is to ladder up NSCs to reinvest the proceeds after their maturity and earn further benefits.
Senior Citizens’ Saving Scheme
If you are a retiree looking to save taxes and assure a regular income, the Senior Citizens’ Saving Scheme is a great investment option.
It offers an interest rate of 8.3%, as opposed to the 7.7% that banks offer to senior citizens. The scheme is for all individuals aged 60 years and above.
It has a maximum investment of ₹15 lakhs per person with an extendable tenure of 8 years. Its regular maturity period is 5 years. The scheme also has a clause for premature closure with a deduction of 1.5% after a year and 1% after two years.
Planning your investments can aid you a great deal with your taxes and savings. These are five of the best options to consider.
Some other tax savers include health insurance plans, the National Pension Scheme (NPS), and Sukanya Samriddhi Yojana. Efficiently strategizing your investments can guarantee you a victory over taxes.