Hi everyone! 👋 Are you tired of paying taxes year after year? Do you want to know how to invest your hard-earned money and, at the same time, reduce your tax burden? Well, you have come to the right place! Here, I will explain five tax-saving investments that will help you put your money to work for you while also saving you a considerable amount of money on taxes. So, without further ado, let’s dive in! 🏊‍♂️

Section 1: Public Provident Fund (PPF) 🏦

If you are looking for a safe and secure way to save taxes, then the Public Provident Fund (PPF) is an excellent option for you. The PPF is a long-term investment scheme that offers an attractive interest rate, capital gains tax exemption, and EPFO backing. The interest rate on PPF is currently 7.1% per annum (as of April 2021), which is compounded annually. The investment in PPF allows you to get a tax deduction of up to INR 1.5 lakh under Section 80C of the Income Tax Act. Moreover, The returns on the PPF are also tax-free at maturity. If you are looking for a long-term investment option that allows you to save taxes and get good returns, then PPF is the way to go.

An image of a PPF account statement

Section 2: National Pension Scheme (NPS) 🏦

If you want to save taxes and plan for your retirement at the same time, the National Pension Scheme (NPS) is your best option. The NPS is a long-term pension scheme that allows you to receive a regular pension after retirement. The NPS offers two investment options – Active (you have to monitor and manage your portfolio) and Auto (where the investments are managed by the pension fund manager). You can claim a tax deduction of up to INR 1.5 lakh under Section 80C and an additional INR 50,000 under Section 80CCD (1B) for the contribution to NPS. Moreover, NPS offers an additional tax deduction of up to INR 50,000 under Section 80CCD (1B). Therefore, by investing in NPS, you can save a considerable amount of tax and plan for your retirement at the same time.

An image of a person retiring and enjoying their retirement using pension funds

Section 3: Equity-Linked Saving Scheme (ELSS) 📈

If you are looking for creating some wealth along with saving taxes, then investing in Equity-Linked Saving Scheme (ELSS) is an excellent option for you. ELSS is a type of mutual fund that invests primarily in equity and equity-related instruments and offers a tax benefit. An investment of up to INR 1.5 lakh in ELSS is eligible for a tax deduction under Section 80C of the Income Tax Act. Moreover, the long-term capital gains from ELSS are tax-free up to INR 1 lakh. ELSS has a lock-in period of three years, which means you can’t sell your investment before three years. ELSS also has the potential to offer high returns and is suitable for investors who have a high-risk appetite.

An image of a Graph representing the growth of an investment with multiple dips and peaks

Section 4: Tax-Saving Fixed Deposits (FDs) 🏦

If you are risk-averse and want a low-risk investment option to save taxes, then tax-saving FDs are an excellent option for you. Tax-saving fixed deposits are like any other fixed deposit, but they come with a lock-in period of five years, and the interest earned is taxable. You can get a tax deduction of up to INR 1.5 lakh on the investment amount made in tax-saving FDs under Section 80C of the Income Tax Act. Moreover, the interest earned on these deposits is also liable to tax, just like any other FD. But tax-saving FDs are more suitable for individuals who are looking for a guaranteed return and safety of principal.

An image of a bank manager opening a fixed deposit account with a customer

Section 5: Unit-Linked Insurance Plan (ULIP) 🧔🏻

If you want to save taxes and get a life cover along with investment returns, then investing in a Unit-Linked Insurance Plan (ULIP) is an excellent option for you. ULIP is a type of life insurance plan that offers both insurance and investment. A part of your premium goes towards life insurance coverage, while the rest goes into an investment fund of your choice. You can claim a tax deduction of up to INR 1.5 lakh under Section 80C of the Income Tax Act, and the returns on maturity are also tax-free. ULIP also offers flexibility in terms of investing and switching between funds. ULIP also comes with a lock-in period of five years, which means you cannot withdraw your funds before five years.

An image of a family enjoying their time happily with insured money

So, these were the five tax-saving investment options that you should consider for your investments. By investing in these schemes, you can save taxes and also get good returns. You should choose the investment option based on your financial goals, risk appetite, and investment horizon. I hope you found this article helpful. Happy Investing! 👍

An image of a person sitting at a desk and happily looking at their investment portfolio