It’s rightly said – “A penny saved is a penny earned”. Saving money through tax planning is a necessary step in one’s financial life. After all, what’s better than investing and saving taxes at the same time? In India, there are savings options that allow deductions on the taxable income under section 80C of the Income Tax Act, 1961.
Here we have curated a list of the 10 best tax savings options under 80C of the Income Tax Act.
1. Life Insurance
- Life insurance is a scheme wherein the policyholder pays timely premiums to provide financial protection to the family at the unfortunate time of the death of the policyholder.
- In India, a yearly premium paid up to ₹ 1.5 lakh is exempted from the income tax.
2. National Pension System (NPS)
- NPS is a voluntary pension contribution system that offers a return of 12% to 14% with the lock-in period until the retirement age of the individual.
- It enjoys the status of Exempt- Exempt- Exempt, meaning- the individual gets tax exemption at contribution, withdrawal and even interest.
- Under section 80CCD(1B), additional deduction of ₹ 50,000 is available to the taxpayer over the deductions available under section 80CCD(1) i.e. ₹ 1,50,000. It is available to both self-employed and salaried individuals.
- Section 80CCD(2) allows salaried employees to claim deductions up to 10% of their salary (basic pay plus dearness allowance) or contributions made by the employer.
3. Health Insurance
- Along with providing security against unforeseen health emergencies, health insurance is also beneficial for tax savings.
- Under section 80D, a policyholder can avail of a maximum of ₹ 25,000 tax deduction through premium paid for self, spouse and dependent children.
- And, additional tax deduction of up to ₹ 50,000 is allowed for the premium paid for the parents over 60 years of age.
4. Public Provident Fund (PPF)
- PPF is a popular government-backed instrument that offers a return of 7.1% p.a. for the current quarter.
- Both- contributions (up to ₹ 1 lakh per year) and interest earned from PPF are exempted from the taxable income under Section 80C.
5. Unit Linked Insurance Plans (ULIPs)
- ULIP offers insurance cover cum investment in a single plan. When an individual invests in ULIP, the company distributes premium in equity & debt and the remaining is utilized towards insurance cover.
- Both the premium paid and interest gained on ULLIPs enjoy the benefit of tax exemption.
6. 5-year Tax-Saving Fixed Deposit
- Tax-saving fixed deposit with a lock-in period of 5 years not only helps you preserve your capital but also saves taxes.
- It provides 6% – 7% p.a. with the option of quarterly or annual payouts.
- Maximum deduction of ₹ 1.5 lakh per year is permitted through tax-saving fixed deposits.
7. Equity Linked Savings Scheme (ELSS)
- ELSS is a kind of mutual fund where at least 80% of the total amount is invested in equity and related instruments.
- It provides a return of 15% to 18% with a lock-in period of 3 years.
- It also allows a tax exemption of ₹ 1.5 lakh per year.
8. Employee Provident Fund (EPF)
- EPF is a scheme wherein both employee and employer contribute to the fund.
- At the time of retirement, the employee gets a lump sum amount of their investment along with the interest.
- An individual’s contribution to EPF, up to ₹ 1,50,000, can be deducted from total taxable income under 80C of the Income Tax Act.
9. Sukanya Samriddhi Yojana (SSY)
- SSY is a savings scheme you can opt for your girl child of age less than 10 years.
- Currently, it provides 7.6% p.a. of interest.
- Deposit amount (up to ₹ 1,50,000 per year), as well as maturity amount from the scheme, are tax-exempt.
10. Senior Citizens Saving Scheme (SCSS)
- SCSS is best suited for senior citizens over the age of 60.
- It has a lock-in period of 5 years and currently offers a return of 7.4%.
- The subscriber can avail of the tax exemption up to ₹ 1.5 lakh under Section 80C. Also, there are no tax liabilities if withdrawn by the legal heir or nominee.