Best tax saving investments in India under 80c | Top 10 tax saving investments in India

Top 10 tax saving investments | Best tax saving investments

1- Public Provident Fund

Public Provident Fund is my topmost tax saving option. It gives you full tax saving with maximum safety. There is a lot of flexibility and ease also. Anyone can invest in this. Almost every big bank offers this facility.

Tax Saving          

You can save tax on this investment as it comes under 80C.

 Interest paid is also tax free.

Redemption amount is also not taxed such as insurance maturity amount.

Lock In Period    PPF investment is for 15 years. Normally you can’t redeem it before that.

You can take loan before 5 years and withdraw it partially after 5 years

Investment Limit              You have to invest minimum 500 annually.

Maximum investment limit is 1,50,000 annually

Safety   This is one of the safest investment option. Banks process it and money remains with the government of India

Interest                Interest rate varies with the market rate. 10 Year government Bond yield is the benchmark. Hence it will never under perform.

Where to Invest               State bank of India and all big National and private Banks give this facility.

Now you can open PPF account online also. Even Post office also gives this facility.

Recurring Investment    It is not mandatory to invest fixed amount every year unlike insurance schemes. You can invest any amount. You can invest once a year or up to 12 times a year.

Employees get the benefit of EPF which gives them retirement saving with tax benefit. For professional and self-employed PPF plays this role. Return and conditions of PPF withdrawal is same as EPF. But in PPF you get much more flexibility. You can invest in PPF up to the limit of 80C investments.

Note – PPF starts calculating 15 years from next April. It means that if you start investing since Dec 2013, your PPF account will mature in April 2029. But if you invest during 1 – 5 April your account would be considered from same financial year. Also put your money before 5 of every month to get the interest of that month.

2- Employee Provident Fund

Organized sector employee must be aware of this tax saving investment. It is mandatory for employers to deduct 12% of the employee salary towards employee provident fund (EPF). Employer also contribute the same amount. This investment is qualified for tax deduction. Fewer people know that you can invest more than the prescribed 12%. This excess amount also get tax benefit. The EPF can be transferred from one job to another easily. After leaving the job you can withdraw EPF.

Tax Saving          

Money being invested in EPF get tax deduction under 80C.

Interest paid is also tax free.

Redemption amount is also not taxed.

Lock In Period    Money is locked till your retirement.

If you remain unemployed for 2 months then you can withdraw your whole amount.

Withdrawing money before 5 year would be taxable

You can withdraw partially in special situations.

Investment Limit              You get tax benefit till 80C limit. You can invest more than the prescribed 12% of the salary. Excess amount will also get tax benefit.

Safety   This is one of the safest investment option. Money remains with the government of India

Interest                EPFO determines Interest rate every year according to its return. EPFO invest mainly in government bonds.

How to invest    your employer deducts it regularly. For excess deduction you can say to your employer in the beginning of the financial year.

Recurring Investment    There is no flexibility. EPF portion always remains 12% of your salary. Also Once you decides for excess deduction it will remain there till the end of financial year.

3- Equity Linked Saving Scheme (ELSS)

Equity Linked Saving Scheme (ELSS) has a minimum lock-in period. Your money is locked only for three years. But you should not always exit from it after three years. Equity investments give good return in a longer period. You can even rotate your investment after three years. Because of this, you will be spared of fresh investment for tax saving after the three years. Also, if you need some money before three years then choose the dividend option. It will give tax-free dividend as well. SIP would be the perfect way to invest in these funds. It averages the ups and downs of the market. You can invest more than the 80C limit in the ELSS.

Tax Saving          

Money invested in ELSS get tax deduction under 80C.

Dividend paid is also tax-free.

Maturity amount is also not taxed.

Lock-In Period   This option has smallest lock-in period. After 3 year you can redeem your money.

Investment Limit              You can invest any amount, but tax benefit is limited to 80C rules. (Upper limit for 80C tax rebate is 1 lakh total)

Safety   It is as risky as any diversified equity mutual fund. As all of your money is invested in share market you can experience the roller coaster ride.

Return  Traditionally, long term Equities give a better return than any other investment. But it may happen that after the completion of 3 year lock in period your money get depleted.

How to invest    many fund houses have the ELSS. You can Invest online directly through the Fund house’s own website or through the distributors such as FundsIndia.

Recurring Investment    There is no limitation for recurring investment. But fixed SIP would be suitable to overcome the markets up and down.

Must Read: Best ELSS to Invest in 2016

4- National Pension System (NPS)

National Pension System (NPS) is not much popular tax saving investment. But it gives you a happy retirement life as well as tax saving. You can claim investment in the NPS for tax deduction under the 80C. But it has a big drawback also. Government did not make maturity proceedings tax free.

You will get money only after the retirement.

From the 60% of the maturity amount you have to take annuity policy.

Rules are somewhat stiff but it is designed to give you happier retirement life. Government has added some flexibility, which has made it more attractive. You can read in details about it here

Pension Bill – Changes in National Pension System and Benefits to You

Tax Saving          

Money invested in NPS get tax deduction under 80C.

Maturity amount is taxable

Lock In Period    Money is locked till your retirement. You can withdraw 25% in special circumstances with some conditions.

Investment Limit              Tax saving under 80C rule. You can claim tax deduction up to 10% of your salary which should not be more than 80C limit. However can invest more but it will not get tax saving.

Your employer can contribute more on his behalf in your account. This contribution will be tax free over and above the 80C limit.

Safety   Money is invested in fixed instrument as well as in shares. You have to choose where you want to invest. Equity investment cannot be more than 50% of the fund. Also there is life cycle fund which automatically changes your asset allocation with age.

Now government also gives minimum guarantee of the return. You can take that option also.

Return  You can expect market return of fixed investment. If you are investing more in equity then you should be ready for ups and down. But don’t worry for longer period it will certainly give good return.

How to Invest    Government Employees now invest their money in this scheme by default. Private company employee and unorganized worker can subscribe this scheme from the ‘point of presence’. These are the distributor of National Pension System. Most of them are banks while some are financial companies. Go through this link

Recurring Investment    You have to invest minimum 6000 in a year else you will be fined for 100 rupees per year. No contribution can be less than 500 rupees.

5- Tax Saving Fixed Deposit

The Tax saving Fixed Deposit are just like any other fixed deposit. You will get similar interest rate also. But your money will be locked for 5 years. You can’t withdraw your money before maturity. Also Interest earning would be taxable. Ease and peace of mind is the biggest plus point of this tax saving investment.

6- Term Insurance

Term Insurance does not give you ant maturity amount. You can save tax and have a big peace of mind. This gives life cover so that our family would not suffer in distress if there is any eventuality with us. These days online term plans are cheaper and you can have 1 crore term plan in 10-15 thousand annually. HDFC Life, Birla SunLife gives these online term plans.

7- National Saving Certificate

National saving certificates (NSC) are similar to Tax Saving Fixed Deposit. But today it gives less return than Bank Fixed Deposit. Also now finding post office is difficult than banks. But NSC should be considered safer than FD, since your money remains with government of India.

NSC also gives the benefit of tax saving under 80C. Unlike ELSS, PPF or EPF interest is taxable in case of NSC. There is one extra tax benefit with NSC. As your interest is considered accrued every year. But it stay invested so you can claim this interest also for tax deduction.

There is no maximum limit of investment.

Rate if Interest if 8.50% for 5 years and 8.80% for 10 years.

You can take a loan from banks also using this certificate as collateral.

8- Senior Citizens Saving Scheme

Senior Citizen Saving Scheme is designed for elderly and it is one of the best tax saving scheme for them. Even senior citizen who don’t need tax saving can also invest in this scheme. It gives them regular income as interest is deposited regularly in their account.

Tax Saving is under the 80C Scheme.

Interest is taxable. But as many Senior citizen earns less than their limit of tax so this should not be any hindrance.

This Scheme is for 5 years but one can withdraw the amount with some conditions.

The maximum limit for this account is 15 Lakhs.

Minimum limit is 1000.

Interest Rate is 9.2% compounded quarterly. Interest is credited in account on 31 March, 30 June, 30 September and 31 December irrespective of your date of deposit.

It is very safe as your money remains with Government of India.

9- Unit Linked Insurance Products (ULIP)

Unit Linked Insurance Products give you insurance cover as well as investment. ULIPs invest some amount of your money in shares. You can decide which proportion of your fund should be invested in shares. ULIP has some positives but many negatives also.

Positives

ULIPs are very tax efficient. You can save tax from investment under 80C. While maturity amount would not be taxed also.

It forces you for regular saving.

You are forced to have some insurance cover if you don’t have one.

You can continuously change asset allocation

Negatives

You can’t withdraw your money before 5 years.

You remain under-insured because the cover is only 10-20 times of the premium.

ULIPs are somewhat opaque. While Mutual funds are analyzed and compared by many research agencies. Less information is available about ULIPs.

Initially charges are higher than normal Mutual fund.

If there is an under performance for long period you can’t switch another funds house. Maximum you can do is allocate more fund to another category. Suppose you chose equity option for building the wealth. But equity fund is under performing than the benchmark. Then you will not have the option to switch over to another equity fund. You can only switch to balance or debt fund, which might also give lesser return.

 10- Health Insurance

I do not need to remind you that Health is Wealth.  Best part is that it gives tax saving benefit also. The premium you pay for health insurance is tax-deductible under Section 80(D). You can get tax saving up to 40,000 of expense in health insurance and health checkup.

You can avail tax deduction on the expense of health insurance for you and family. Limit for tax deduction is 15,000.

You can additionally avail tax deduction for your parent’s health insurance. Limit is 20,000 for senior citizen and 15,000 for non-senior citizen.

Health checkup for you and family is also tax free. The limit is 5,000 annually.

There are many other tax saving options as well. Life Insurance Endowment plans, pensions plans, RGESS and tax-free infrastructure bonds. I have listed top 10 among these. You can also use hidden ways to save tax for greater benefit.

I would like to also mention about most popular tax saving plan that is life insurance schemes. These Endowment schemes are one of worst tax saving option. It gives you below-inflation return, high commission and less flexibility. One should avoid these, agents are pushing hard only to get hefty commission.

Above are the Tax saving investments under 80c