Best Tax Saving Options: Mutual Funds, FD & Other Info

Tax-saving schemes are investment options the government offers individuals to help them save on taxes. These schemes provide tax deductions and exemptions on the taxable income of individuals, thereby reducing their tax liabilities. Such schemes also offer long-term investment options to help individuals plan for their future financial goals.

There are various tax-saving schemes available in the market, such as Equity Linked Saving Schemes (ELSS), Public Provident Funds (PPF), National Pension System (NPS), and National Savings Certificate (NSC). Tax-saving schemes help individuals reduce their tax burden and encourage them to save money for future needs.

They also promote financial planning and management among individuals, making them more aware of their investment choices and associated tax implications. Let’s read about the Tax Savings Scheme, so keep looking forward.

Best Tax Saving Schemes & Investments In 2023:

• You can minimise your tax burden by investing in the tax saving schemes offered by government and private organisations, as there are many options for the best tax saving schemes. Investing in these schemes will make you eligible to avail of tax deductions and exemptions under various Sections of the ITA.
• In India, the quantum of Income Taxes can be reduced by investing smartly in tax-saving schemes. Multiple opportunities exist to reduce an individual’s tax burden by using the available schemes appropriately. 
• Various sections of the Income Tax Act of 1961 that deal with tax deductions and exemptions, such as Section 80C, 80D, 80CCF, and others. Many government and private sector organisations provide various tax-saving options for Indian residents.

About Income Tax Saving Schemes:

Income tax savings schemes are offered per the relevant sections of the Income Tax Act of 1961. The chief among these is Section 80C which offers potential tax savings options of up to Rs.1.5 lakhs yearly. There are other sections also that provide benefits to individuals. Here we will discuss some significant income tax-saving instruments including.

1. Public Provident Fund: Also called PPF, you can make a maximum contribution of Rs.1.5 lakhs per year in this tax-saving scheme. PPF cannot be withdrawn before 15 years without penalty.
2. Unit Linked Insurance Plans: Also called ULIPs, these tax saving schemes allow for a maximum exemption of Rs.1 lakh per year u/s 80C. Apart from investment exemption, the maturity earnings are also tax-exempt.
3. Tax Saving fixed deposit: Tax saving fixed deposits are available for a fixed tenure of 5 years, and a maximum of Rs.1 lakh can be invested to avail tax benefits per year u/s 80C.
4. Employee Provident Fund: EPF is another investment scheme offering tax benefits u/s 80C up to Rs.1 lakh per year.
5. National Saving Certificate: Also called NSC, this instrument can earn tax-saving interest up to Rs.1 lakh per year u/s 80C.
6. Infrastructure Bonds: This investment avenue allows a maximum exemption of Rs.20,000 per annum u/s 80C. Interests are chargeable, with investors permitted to claim tax exemptions for Rs.15,000 u/s 80L.
7. Tax Saving Mutual Funds: These allow for exemptions up to Rs.1 lakh per annum u/s 80C. ELSS are popular instruments for tax savings through mutual funds.

What Are Tax Saving Mutual Funds?

Tax Saving Mutual Funds are Equity Linked Savings Schemes or ELSS. These funds offer a good opportunity for capital appreciation through investments in equities while saving on taxes along the way. 

Also, long-term capital gains from these schemes are tax-free, while dividend options for such funds will enable capital gains even during the lock-in period. 

The typical lock-in period varies between 3-5 years, and the benefits are provided u/s 80C, which entitles investors to tax benefits up to Rs.1 lakh each year. Major fund houses offering ELSS funds are.

1. HDFC MF
2. IDBI MF
3. Birla Sun Life MF
4. ICICI Prudential MF
5. SBI MF

Post Office Tax Saving Schemes:

Post office tax saving schemes also fall under the ambit of Section 80C. Users can claim up to Rs.1 lakh in tax benefits annually through various post office investment options. Some of the significant tax-saving schemes the post office offers are mentioned below. Please take a look at it

1. Time deposit account
2. Recurring Deposit Account for 5 years
3. to 15 years Public Provident Fund account
4. Senior Citizen Saving Scheme
5. National Savings Certificate (VIII issues)

Tax Saving Fixed Deposit:

Tax-saving fixed deposits are available from scheduled banks. These fixed deposit schemes are available with a proper tenure of 5 years. Investors can claim a maximum of Rs.1.5 lakhs as tax benefits through tax-saving fixed deposits per Section 80C of the Income Tax Act. 

The top banks offering tax-saver FDs in India are mentioned below:

1. ICICI Bank
2. HDFC Bank
3. Axis Bank
4. IDBI Bank
5. SBI

Tax Saving Sections:

Section 80C allows for exemptions up to Rs.1.5 lakhs per annum through investments in a list of schemes and instruments as described in the section rules. Apart from 80C, various other sections of the Income Tax Act provide exemptions to taxpayers. Major sections include.

1. Section 80D: Exemption on medical insurance premiums for self, spouse, or children. Maximum exemption of Rs.25,000.
2. Section 80DD: For treatment or maintenance of a physically disabled dependent. Maximum exemption of Rs.15,000 for individuals and Rs.20,000 for senior citizens.
3. Section 80E: Exemption for education loan interest repayment. Full interest amount deductible for 8 years maximum.
4. Section 80G: Exemption on charitable donations. Maximum exemption of 100% of investments.
5. Section 80GG: Exemption on house rent paid, subject to a maximum of Rs.2,000 per month or rent paid not more than 10% or 25% of overall income.
6. Section 80GGC: Full exemption on funds contributed to political parties.
7. Section 80U: Rs.75,000 exemption if the taxpayer is disabled and Rs.1.25 lakhs exemption if the taxpayer is severely disabled.

Best Tax-Saving Investments Under Section 80C:

Although various tax-saving investment plans are already available in the market, people often need clarification about which plan best suits them and which to invest in. To make you choose the best investment plan depending on your risk appetite and preferences, we’ve come up with some of the best tax-saving investments u/s 80C of the Income Tax Act, 1961. Look at the table below for the best tax-saving scheme investments to make.

• ELSS (Equity-Linked Saving Scheme) Mutual Fund:
  The equity-linked saving scheme is a diversified mutual fund scheme with two different features- first, the investment amount in the ELSS scheme is eligible for tax exemption up to the maximum limit of Rs.1.5 Lakh under section 80C of the Income Tax Act. Secondly, the investment made in ELSS has a lock-in period of 3 years. 
• National Pension Scheme (NPS):
  As one of the best tax-saving investment schemes, the National Pension Scheme helps to provide tax exemption under three different sections, as mentioned below.
• Unit Linked Insurance Plan (ULIP):
  ULIPs are other tax-saving investments that not only provide the benefit of tax exemption to the investors but also help them to gain high returns on investment over a long-term period. Unlike before, the new age ULIPs launched by the insurance companies come with zero premium allocation charges and zero administration charges, which result in better returns to the investors.
• Public Provident Fund (PPF):
  PPF is a popular long-term tax saving in investments scheme, which incorporates the feature of tax-saving investments to help investors to create a financial cushion post-retirement. The interest rate on the PPF balance is reset every quarter.
• Sukanya Samriddhi Yojana:
  Another tax-saving investment option is Sukanya Samriddhi Yojana. It is a small deposit scheme mainly designed for the girl child. The plan was launched as part of the ‘Beti Bachao Beti Padhao’ campaign.  The Plan currently offers an interest rate of 7.6% and provides the benefit of tax exemption.  As one of the best tax-saving investments, the tax benefit provided under SSY is:
• National Savings Certificate:
  This is a fixed-income tax-saving investment scheme, which can be opened with any post office. The National Savings Certificate ensures the safety of investment, as it is a government-initiated savings scheme. The plan is specifically designed to encourage mid-income investors to make investments along with the benefit of taxability of income.  Like bank FDs and PPF, the NSC is also considered a low-risk tax-saving investment option, offering a guaranteed return on investment. Along with the benefit of transparency and ease of investment, the tax benefits provided under the policy are:
• Senior Citizen Saving Scheme:
  Senior Citizen Savings Scheme is a government-backed tax-saving investment scheme designed to provide seniors with financial safety. Individuals above 60 years are eligible to invest in SCSS.  Under this scheme, the investors are qualified to make a one-time deposit of a minimum of Rs. 1,000 and can invest up to a maximum of Rs. 15 lakhs (In case of joint holding) and Rs. 9 lakhs (in case of single holding). Thus, the cost of investment in SCSS is very flexible.
• Bank Fixed Deposit Schemes:
  Bank FDs are security deposits similar to other guaranteed return investment options. The only difference is that the investment tenure applicable in Bank FDs is for 5 years. As a tax-saving investment plan, the bank FD offers tax-free income. 
• Insurance:
  Life Insurance is considered a tax-saving investment product available in the market. However, individuals are not advised to buy a life insurance policy only with the motive of saving tax, as the main objective of these insurance policies is to provide insurance coverage.

How To Plan Tax-saving Investments?

Even though most taxpayers delay tax planning till the last quarter, which results in hassled decisions, the best time to plan tax-saving investments is at the beginning of the financial year. Suppose an individual starts planning for tax-saving investments at the beginning of the financial year. In that case, the investments made can multiply over a long-term period and help individuals fulfil their long-term financial goals.  Taxpayers can follow these pointers to plan their tax savings for the year and make wise decisions while investing in tax saving instruments plans.

1. Check your pre-existing tax-saving expenses, such as insurance premiums, contribution to the EPF account, children’s tuition fees, home loan repayment, etc.
2. If your tax-saving expenses cover the maximum limit of Rs.1.5 lakh, you will not require investing the entire amount.
3. Based on the goal and risk profile, choose tax-saving investments such as PPF, ELSS funds, Bank FDs, and NPS.

Income Tax-Saving Tips:

As necessary to earning a decent income for your livelihood, saving that income wherever and whenever possible is also essential. Therefore, the Government of India provides income tax saving benefits under various Sections to help individuals of different ages attain maximum profit.

Here are some major top investment options one can opt for depending upon the life stage they are mentioned below.

1. Tax Saving Investment for Single Income Earners or Unmarried Individuals: It is essential to start saving at the right age for a bright and financially independent future. For unmarried or single-earning individuals in a family.
2. Tax Saving Investment Options for Married Couples: If both parties earn in a marriage, they can claim up to Rs. 8,50,000 as deductions by putting their money in different investments and insurances.
3. Tax Saving Investment Options for Parents: If you are a parent, you can claim these investments for the better future of your children.
4. Tax Saving Investment Options for Senior Citizens: A decent financial corpus after retirement is crucial as you no longer earn a regular monthly income to carry out your expenses. 

Frequently Asked Questions:

Summing Up:

In conclusion, tax-saving schemes are an excellent investment option for individuals looking to save tax and create wealth over the long term. These schemes offer various benefits such as tax deductions, diversified investment options, disciplined savings, retirement planning, and liquidity.

Whether applying for a tax-saving scheme online or offline, individuals should understand their investment options and choose the scheme that best aligns with their financial goals and risk appetite. It is essential to start investing early and remain committed to a disciplined investment approach to reap the maximum benefits of tax-saving schemes.