Best Tax Saving Investment Plan is an integral part of life because they offer a tax deduction under section 80C or 80CCC.

As a smart investor, one should look for tax saving investment, which not only provides the benefit of tax exemption but also helps to earn tax-free income.

However, investors are not sufficiently interested in the investments because of the low yields and the different risks related to the various investments.

Best tax saving investment for 2019

The right time to start Tax Saving Investment

Most of the individuals think tax-planning is a let’s doing it later affair.

The tax-saving season starts from 1st April of every year for both salaried and non-salaried taxpayers.

A smarter approach is to start investing in the early quarters of the financial year so that one can get time to sensibly plan and can avail the maximum returns on investment from different tax saving investment.

Also Read: Top 7 Best Saving Plan In India

What is Tax Saving Investment under section 80C?

Before moving on to the list of best tax saving investment schemes, it is important to know about the key section of the Income Tax Act i.e. section 80C.

Most forms of tax saving investment plan work under the parameters of section 80C of the Income Tax Act.

As per the 80C section, the investments made by the investor are eligible for tax exemption up to a maximum limit of Rs. 1, 50,000.

The articles 80C and 80CCC aims to present a comparative analysis of the popular tax saving investment options available in India.

Such investments include ELSS (Equity Linked Saving Scheme), Fixed Deposits, Life Insurance, Public Provident Fund, National Savings Scheme and Bonds. There are very few investment avenues that provide a further tax deduction, over and above this limit.

Best Tax Saving Investment Schemes

Let’s take a look at the best tax saving investment under section 80C of the IT Act.

InvestmentReturn Tenure
FD 6-8% 5 years
PPF 7-9% 15 years
ELSS12-14 % 3 years
ULIPs 8-10% 5 years
NSCs 8% 5 years
NPS 8-10% Till age of 60

*Returns provided are estimated, based on historical rates. Actual market returns may vary.

1.Fixed Deposits

Bank FDs the fixed income security deposits, which is similar to other guaranteed return investment options.

The only difference is that the term of investment applicable in Bank FDs is for 5 years. As a tax saving investment plans, the bank FD offers tax-free income.

This plan is best suitable for individuals who have a low-risk appetite and want to save money over a long-term period.

Bank FD offers guaranteed return on investment to the individuals and also ensures the safety of investment as the amount invested gets locked-in up to the entire tenure.

In tax-saving investment FD, one can claim up to the maximum limit of Rs.1.5 lakh under section 80C of the Income Tax Act. The banks set the fixed deposit interest rate which can be changed every quarter or financial year.

FD calculator shows you how Fixed Deposit has higher interest-earning potential as compared to the savings account. FD allows only one-time lump-sum payment.

As Bank FD has a tenure of only 5 years, it does not allow premature withdrawal.

2. Public Provident Fund (PPF)

PPF is a popular long-term tax saving investment scheme, which incorporates the feature of tax saving investment in order to help the investors to create a financial cushion for post-retirement.

The interest rate on the PPF account balance is reset on a quarterly basis. In case of the implication of income tax, the Public Provident Fund enjoys an EEE status i.e. exempt, exempt and exempt.

This means that the contribution made towards the PPF account online, the interest earned and maturity proceeds are all tax exempted. Thus, it is considered one of the best tax-saving investment products.

Maturity Period

The public provident fund maturity period of 15 years that can be further extended for 5 years. PPF calculator will help to know the estimated cost of PPF account benefits. A maximum of Rs1.5 lakh can be claimed for tax exemption under section 80C of the Income Tax Act.

Government-backed savings scheme

As a government-backed savings scheme, Public Provident Fund is the safest and ideal financial instrument that offers the benefit of return on investment over a long-term period. Partial withdrawals are allowed every year in PPF account, after the completion of 7 financial years from the date of initiation.

One can make a partial withdrawal, provided the withdrawal amount should not exceed 50% of the balance.

In a financial year, an individual can make only one PPF withdrawal. As a government-initiated savings scheme, PPF offers the ease of investment as one can start contributing to PPF account balance with a minimum amount of Rs.500 and can contribute up to maximum Rs.1.5 lakh in a year.

Moreover, the investors have the choice to contribute either in monthly instalments or a lump-sum amount. However, the maximum contribution of 12 installments is allowed in a year.

Also Read: Top 3 Best One Time Investment Plan for Child

3. ELSS Funds

The Equity-Linked Saving Scheme is the diversified mutual fund scheme, which has two different features-

  1. 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 Income Tax Act.
  2. The investment made in ELSS has a lock-in period of 3 years.

Top 10 ELSS funds offer an interest rate of 15%-18%. However, the ELSS returns are not fixed in an equity-linked saving scheme and vary according to the market performance of the fund. Use the ELSS calculator.

The investors can opt for dividend or growth option in ELSS fund according to one’s own suitability or requirement. However, from April 1st, 2018, the dividends in an equity scheme are 10% taxable. Thus, the investors who choose the growth option over dividend are likely to yield ELSS returns tax effectively.

4. Unit Linked Insurance Plan (ULIP)

The ULIP full form is Unit Linked Insurance Plan.

ULIP Taxation

ULIP plan, is another tax saving investment, provides the benefit of tax exemption to the investors.

The investment returns are also tax-exempted U/S 10(10D) of the IT Act. ULIP plans come with a lock-in period of 5 years and offer the investors the ease of investment. The investors also have the flexibility of investment as they can choose from the wide range of fund options to invest in.

Moreover, with the combined benefit of insurance and investment, one can gain the benefit of the taxability of income on the premium paid towards the policy under section 80C of the Income Tax Act.

Unlike before, the new age ULIPs launched by the insurance companies comes with zero premium allocation charges and zero administration charges, which result in better returns to the investors. ULIP calculator helps to calculate the high returns on investment over a long-term period.

Also, in ULIP plans, one can make a free switch between funds 3-4 times in a year. Even though ULIP is a lucrative option of tax-saving investment, the ULIP returns entirely depend on the market performance of the fund.

Read Informative: Comparison Of ULIPs Vs ELSS Vs PPF

5. National Savings Certificate (NSC)

National Savings Certificate 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 NSC plan is specifically designed to encourage the mid-income investors to make investments along with the benefit of taxability of income. The NSC is also considered as a low-risk tax saving investment option, which offers guaranteed return on investment.

The benefits of transparency and ease of investment the tax benefits offered under the policy are:

  1. One can claim tax deduction up to the maximum limit of Rs.1.5 lakh under Section 80C of the IT Act.
  2. The interest earned on the certificates is added back to the initial investments and is eligible for tax exemption.
  3. In the second year of investment in the NSC account, the investors can claim a tax deduction on NSC investment of that year, as well as the interest earned in the past year.
  4. This is because the interest earned is added to the investment and is compounded annually with the help of the NSC calculator.
  5. On maturity of this tax-saving investment scheme, the individual will receive the entire maturity amount. Since no TDS is applicable to NSC payouts; the investors are required to pay the applicable tax on it.

6. National Pension Scheme (NPS)

As one of the best tax saving investment scheme, National Pension Scheme helps to provide tax-exemption under three different sections as mentioned below.

The contribution, up to the maximum limit of Rs.1.5 lakh can be claimed for tax exemption under section 80C of IT Act.

Under Section 80CCD (1b) one can get additional deduction up to Rs.50,000. If 10% of the basic salary of the individual is contributed by the employer in the National Pension Scheme, then the amount is not taxed. You will get good National Pension Scheme returns.

How to save tax under Section 80C

Youtube: How To Save Tax Under Section 80C | ELSS Mutual Fund | Explained In Hindi


Q. Do I have to pay taxes on the investments?

Ans: The taxes on the investments depend on the type of investment you are making. Here are some of the investment types wherein the taxes are levied:
Capital Gains: This means when you sell some of your investments at a profit, you are taxed.
Dividends and Other Income Types: With profits of selling the investments, you have to pay the interest on dividends, interest, rental or other types of income that you get.
Tax on Interest: Even though the interest gained from various tax saving schemes is tax-free, but there are many cases wherein you have to pay taxes on the interest you gained.

Q. Is the interest received on the tax-saving FD taxable?

Ans: Yes, the interest received on a tax saving FD is taxable.

Q. What is the lock-in period for ELSS?

Ans: ELSS has a lock-in period of 3 years.

Q. Is there any tax associated with ELSS?

Ans: As the lock-in period of ELSS funds is 3 years, the gains are treated as long-term gains and they are taxed at 10% for gains over 1 lakh rupees.

Q. What is the maximum amount of deduction from 80C (tax savings schema)?

Ans: Deduction is limited to the whole of the amount paid or deposited subject to a maximum of Rs. 1,50,000. This maximum limit of Rs. 1,50,000 is the aggregate of the deduction that may be claimed under sections 80C, 80CCC, and 80CCD.

Section 80CCD(2):
1. Employer’s contribution up to 10% of basic plus DA is eligible for deduction under this section.
2. Employer’s contribution is an additional deduction as its not part of Rs 1.5 lakh allowed under Section 80C.
3. It is also beneficial for employers as it can claim tax benefit for its contribution by showing it as a business expense in the profit and loss account.
4. Self-employed cannot claim this tax benefit.

Section 80CCD(1B):
1. Additional exemption up to Rs 50,000 in NPS is eligible for an income tax deduction.
2. Introduced in Budget 2015, fro FY 2015-16.
3. Taxpayers in the highest tax bracket of 30 per cent can save Rs. 15,000 by investing Rs. 50,000 in the NPS. Those in the 20 per cent tax bracket can save aroundRs. 10,000, while people in the 10 per cent tax bracket can save Rs. 5,000 per year by investing in the NPS.
4. The additional tax benefit of 50000 is over and above the benefit of 1.5 Lakhs which can be claimed as a deduction under Section 80CCE.
5. It is irrespective of the type of employment. So, a government employee, a private sector employee, self-employed or an ordinary citizen can claim the benefit of Rs 50,000 under Section 80CCD(1B).

This Article was written by,

Akshay M.

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