Tax Saving Investments You Must Make Before the Financial Year Ends

Investment is not just for creating wealth, it can also help you save on taxes. As the financial year is coming to an end on March 31st, it is important that you make the right investments to reduce your tax liability. To avail the most of the benefit of tax saving investments, people generally choose the old tax regime as it offers higher deductions. So, let’s understand in detail about the 10 best tax saving investment options available in the old tax regime.

10 Best Tax Saving Investments Under 80C​

Section 80C of the Income Tax Act is the most popular way that provides several options to avail the benefit of tax free investments. In this section, you can avail the deductions on the maximum investment of up to ₹1.5 lakhs in a financial year.

Here is the list of the 10 best tax saving investments under 80C.

1. Equity Linked Saving Schemes (ELSS)

ELSS mutual funds come under the horizon of equity funds and invest most of their assets in equities. While providing market-based returns on the appreciation of invested stocks, these funds also provide tax saving investment benefits.

These funds carry a lock-in period of 3 years, meaning that you cannot redeem the units before completing this period.

You can invest in these funds either through SIP or lump sum and invest as much as you want. However, you cannot claim a deduction on taxable income above the Section 80C limit of ₹1.5 lakhs in a financial year.

2. National Pension System (NPS)

NPS is a government initiative that helps you invest for your retirement and through investing in equities, this scheme helps you earn market-linked returns. An NPS account can be opened by an Indian citizen between the ages of 18 and 70.

Section 80C allows for deductions in the taxable income of the investment made of ₹1.5 lakhs. Additionally, you can also claim the tax free investment or deduction benefit of ₹50,000 under Section 80CCD (1B). The NPS account of an investor is locked until he reaches the retirement age of 60, subject to premature withdrawals in specified conditions.

3. Employees Provident Fund (EPF)

EPF is a retirement scheme in which both employees and employers contribute their share to the EPF account. This tax saving investment scheme helps the employees to earn a fixed rate of return of 8.25% for the financial year 2024-25.

Employees can claim the deduction on the taxable income only on their contribution up to the upper limit of ₹1.5 lakhs in a financial year. The employer’s contribution, which is up to 12% of the employee’s basic salary, is exempted from tax.

4. Public Provident Fund (PPF)

PPF is a government-backed retirement saving option wherein one can invest a minimum of ₹500 and a maximum of ₹1.5 lakhs in a financial year. This tax saving investment provides a fixed rate of interest and it is currently set at 7.1%.

The PPF account is locked in for 15 years and only an Indian citizen can open this account. This instrument falls under the category of EEE (Exempt-Exempt-Exempt), and the amount deposited can be claimed under the tax free investments under Section 80C. Additionally, interest earned and withdrawal amounts are also tax-exempt.

5. Life Insurance Premiums

The premium contribution you made to your life insurance policy can also serve as tax free investment. If you have paid an insurance premium for policies bought for yourself (including spouse and children), then such premium payments are eligible for deduction under Section 80C.

Whether your child is dependent or independent, married or unmarried, minor or major, the deduction under section 80C can be taken.

6. Unit Linked Insurance Plans (ULIP)

ULIP is a combined product of investment and life insurance. Some of the portions will be allocated towards providing life cover and the rest will be invested in stocks and bonds to earn market-based returns. This tax saving investment also has a lock-in period of 5 years.

The premium paid towards a ULIP is eligible for a tax deduction under Section 80C. Additionally, the returns made from the policy on maturity are exempt from tax under Section 10(10D).

7. Tax Saving FDs

Fixed deposits (FDs) can also help you save taxes, as there are specific tax saving FDs with a lock-in period of 5 years that come under Section 80C. The amount you invest in an FD serves as a tax saving investment route, and you will also earn a fixed rate of interest.

However, the interest you earn on these FDs is taxable and they can give comparable returns as much as you earn in regular FDs.

8. National Saving Certificates (NSC)

NSC is a fixed-saving plus tax saving investment scheme that provides an assured rate of return (the current rate is 7.7% for Q2 FY25). This government scheme comes with a lock-in period of 5 years and the minimum amount you need to invest is ₹1,000.

The interest earned from this scheme is reinvested for the 4 years and can also be claimed for deduction under Section 80C. The interest earned in the fifth year and the maturity amount will be taxed in the hands of the investor.

9. Senior Citizens Saving Scheme (SCSS)

SCSS is an ideal investment scheme for those above 60 years of age as it provides a regular source of income. Senior citizens can invest the lump sum amount and get periodic income, and at the same time, they will get a fixed rate of interest.

For FY25, the interest rate is 8.2% and it is paid on a quarterly basis. It has an initial maturity period of 5 years. The minimum amount that you can deposit is ₹1,000, and the maximum amount is ₹30 lakhs.

10. Sukanya Samriddhi Yojana (SSY)

SSY is a scheme for the girl child and this account can be opened by the parents until the child reaches the age of 10. The minimum investment amount is ₹250 and the maximum is ₹1.5 lakhs.

The maturity period of SSY is 21 years from the account opening or upon her marriage after attaining 18 years. However, contributions have to be made for the first 15 years only. Thereafter, the SSY account will continue to earn interest until maturity.

The rate of interest for Q2 FY25 is 8.2% p.a. Apart from the 80C benefit, this tax saving investment will provide tax exempted interest earnings and maturity amount.

How Much Tax You Can Save Through ₹1.5 Lakhs Contribution in 80C?

Suppose your annual salary income is ₹15 lakhs and you opt for the old tax regime, then here is how much tax you need to pay with or without the tax saving investment under Section 80C.

This means that through ₹1.5 lakhs tax saving investments and availing the deductions under Section 80C, you can save the tax of ₹46,800 (₹2,57,400 – ₹2,10,600). Through strategic planning and making the right investments, you can directly benefit from lowering taxes and getting more money in hand.

Conclusion

Tax saving investments provide the dual benefit of reducing tax liabilities and wealth creation. Before the financial year ends, these instruments should be considered if your total income falls in the tax-paying slab. However, you must remember that in Section 80C, you can claim the total deduction of up to ₹1.5 lakhs in a financial year combining all instruments. You can easily invest in these 80C instruments by opening Demat account with SMC Global Securities.

Frequently Asked Questions – FAQs

1. Which investment is best for tax savings?

Some of the best tax saving investment options are ELSS funds, PPF (Public Provident Fund), National Saving Certificates (NSC), NPS (National Pension Scheme), and tax-saving FDs.

2. How to pay 0 tax on 15 lakh salary?

To pay 0 tax on ₹15 lakh salary, you can go with ₹2.5 lakh basic exemption, ₹1.5 lakhs deductions under Section 80C, standard deduction of ₹50,000, HRA exemption, LTA exemption, ₹2 lakh deduction on home loan interest under Section 24(b), etc.

3. How to save tax if 80C is full?

Apart from 80C, you can also claim deductions under Section 80CCD (1B) (contribution to NPS), Section 80D (health insurance premium paid for self, spouse, dependent children, parents), and Section 80E (interest paid on education loan).

Author: All Content is verified by SMC Global Securities.