Today, the market is full of investment schemes, which save individuals from the pressure to paying hefty taxes. Buying them helps you to effectively plan your finances for a better tomorrow. Here are some tax-saving options you can invest in to get higher returns.
National Pension Scheme (NPS) is a government-sponsored pension scheme that was launched in January 2004 for government employees but was opened to all in 2009. The scheme is one of the best investment options, where you can invest in your post-retirement life and save tax under Section 80C.
National Pension Scheme provides tax-exemption under three different sections:
Investments made in Sukanya Samriddhi Yojana are eligible for tax deduction under Section 80C of the Income Tax Act, 1961. Under this investment, the maximum amount invested is up to Rs 1.5 lakh per annum. One can open a Sukanya Samriddhi Yojana after the birth of a girl child till she turns 10. At the moment, investing in SSY offers the highest tax-free return of 8.5%. As a long term investment option, it also provides the benefit of compounding.
The Equity-linked saving scheme is the diversified mutual fund scheme. The investments made under the ELSS scheme are eligible for tax exemption (maximum limit of Rs.1.5 Lakh) under section 80C of Income Tax Act, 1961. To gain long-term capital returns and minimize the risk, one can invest in more than one ELSS. Being equity-links, ELSS has the potential to earn higher returns when compared to other tax-saving investments. This tax-saving investment option offers flexibility and liquidity in investment and is suitable for individuals who are willing to take risks.
Public Provident Fund is a popular long-term tax saving option, which helps the investors to create a financial cushion for their post-retirement life. The scheme is ideal for those individuals who are willing to earn high and stable returns. Investing in a public government fund provides accumulated returns at the end of the tenure that lasts for 15 years, but if required, an investor can choose to extend this tenure. The entire value of PPF investment can be claimed for tax waiver under section 80C of the Income Tax Act, 1961.
Unit Linked Insurance Plans (ULIP) serves two goals- investment and insurance. It provides a life insurance cover to the policyholder and allows them to reap the benefits by investing in both the stock market or debt funds.
However, investing in ULIP is associated with higher charges due to the life cover element. The investment made in ULIP's can be used to claim a tax deduction (up to Rs. 1.5 lakhs) under section 80C of the income tax act.
With proper knowledge, an investor can look for several tax-saving investments that are available in the market. Such investment options will help you generate a tax-free income.
Written By : Naval Goel
Last Updated : December, 2019
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