If you are the new kid on the block when it comes to taxes or if you are unsure about how to invest wisely to save tax, read on to learn about the best tax-saving investment options. We’ll help you choose. If you’re looking for safe investment options or if you are game for investments with a little risk factor, we’ll tell you about them all.
Traditional Safe Investments
If you’re looking for secure investments even though the returns are moderate, the Public Provident Fund Scheme and National Savings Certificates are good options to consider.
About the Public Provident Fund Scheme
A PPF account gives you an interest rate of 8.7% on your investment. The rate of interest is revised annually. You can invest a maximum of Rs. 1, 50,000 in your PPF account in a year. What’s more, if you choose to invest in a PPF scheme, the interest earned is tax-free and your investment amount can be claimed for tax deductions under Section 80C of the Income Tax Act.
National Saving Certificate
National Savings Certificates have a lock-in period of 5 years or 10 years. You can get a National Savings Certificate from any Post Office across India.
Interest Rates on National Saving Certificate
- If you opt for a National Savings Certificate for a tenure of 5 years, you will get an interest rate of 8.50%.
- For a National Savings Certificate of 10 years tenure you will get interest at 8.80%.
- The interest earned on National Savings Certificates is entirely taxable and your investment is eligible for deductions under Section 80C of the Income Tax Act.
Equity Linked Savings Schemes (ELSS)
If you are the adventurous sort and if you don’t mind some risks, you could think about investing in an Equity Linked Savings Scheme.
An Equity Linked Savings Scheme is a mutual fund linked to equities. An ELSS has a minimum lock-in period of 3 years.
Investments under ELSS are tax free under Section 80C of the Income Tax Act, and returns on your investment are also fully exempted from tax.
Useful Tips to Remember When Selecting an ELSS
Research and select a fund that has shown a good track record. Choose one that is from a reputed fund house.
As your fund is market linked, it is possible that you will earn higher returns than 8% which is offered with traditional investments.
Buy for your Family
If you buy Medical Insurance for yourself, your spouse and children, you could claim tax deduction up to Rs. 25,000. This is deducted under Section 80D of the Income Tax Act.
If you get Medical Insurance for your parents, you will be able to claim an additional amount of Rs. 30,000 or the premium amount, whichever is lower.
Making Investments in a Panic. Not a Good Idea
Take time to carefully assess the benefits of your investment options. There’s no need to panic. In case your employer deducts excess TDS, you can get a refund by filing a return.
Deductions without Investments
You can even benefit from Section 80C of the Income Tax Act without adding to your investment portfolio. We can tell you how.
You can claim the amount that is deducted from your salary towards your Employee Provident Fund under Section 80C.
If you have a Home Loan EMI to pay, you can claim the principal amount of your EMI under Section 80C.
Your premium payments for Life Insurance and school fees for up to two children can also be claimed under Section 80C.