Best Tax Saving Investment Options 2022-2023

Best Tax Saving Investment Options

Saving is our financial cushion for tomorrow and it is a practice that almost everyone follows. Sure, some people find managing savings more difficult than others. You can use your savings to pay for your dream house, your dream car or fund your child’s higher education. Your savings play a crucial role in the growing needs of you and your family. Many people start contributing to their retirement fund with their first paycheck. We make sacrifices to spend today so that a portion of our salary goes into savings to make our future better. But, ‘tax’ is one component that takes away a significant amount from your savings.

Many people often fall into this evil trap of taxation. Everyone dreads tax filing season. It’s that time of the year when people are in a frenzy about how much they will have to spend in tax Saving Investment. It can be overwhelming, especially for those who have just started earning. But, you should understand the intricacies because it is your money that is being paid in taxes.

There are many ways by which you can save the amount of tax you pay. These methods can be broadly divided into two categories, namely expenditure and Tax Saving investment. Expenses like children’s tuition fees, rent, home loan repayments, medical expenses etc. can significantly reduce your total income which is ultimately taxable.

The second category refers to special strategic tax saving investments in the market that are very efficient in their work to reduce your total amount paid in taxes. This article will highlight ten of the best tax saving investment schemes for you. Although they all help in tax saving, they are very different in nature with different features, returns, time horizon and they also work differently.

Top 10 Best Tax Saving Investment Schemes

Here is a list of some of the top Tax Saving investment schemes that you can choose to save tax.

Life insurance

Life insurance is a safety net for your family that provides them with financial security in the unfortunate event of your death. An insurance policy removes the financial burden from your shoulders to your loved ones. You need to pay the premiums on time so that the death benefit can be paid to your family. Although life insurance is not a pure form of Tax Saving investment for tax saving purposes, it always manages to secure a place in the list of best tax saving investment plans available.

Section 80C of Income Tax A allows deduction of the premium you pay for your insurance policy from your total income. This in turn reduces your total taxable income and ultimately the actual tax paid. The limit for this deduction is Rs. 1.5 lakh. Further, Section 10 (10 D) also exempts survival benefit, maturity benefit and death benefit from tax.

Public Provident Fund

Public Provident Fund (PPF) is a long-term savings scheme by the central government. It is one of the most tax-efficient schemes in India for salaried people and the contribution made to your PPF account every year is eligible for tax Saving Investment deduction under Section 80C of the Income Tax Act, 1961. The deduction limit for these deposits is Rs. 1.5 lakhs.

PPF is a gold mine when it comes to tax saving investment schemes. Why? Well, PPFs have EEE or ‘Exempt, Exempt, Exempt’ status which means that the PPF account offers investors the triple benefit of tax-free returns, deduction on deposits and no wealth tax. Moreover, the interest earned on PPF deposits is also tax free.

Also Read: Best Comparing life insurance quotes 2022

Tax saving fixed deposit

A tax-saving fixed deposit is like any other fixed deposit where you put in a certain amount and you get a fixed fixed return every year. There is a lock-in period during which you will not be allowed to withdraw your money. Fixed deposits are generally preferred by people who need guaranteed returns every year.

Under Section 80C, Rs. Tax deduction up to 1.5 lakh is allowed.

Employees Provident Fund

It is mandatory for employers to deduct a certain percentage from the employee’s salary and remit it to the Employee Provident Fund (EPF). The employee and the employer make regular contributions to the EPF account. The interest rate is based on the employee’s basic pay along with a component known as dearness allowance in his gross pay. An employee gets a lump sum which includes his own and employer’s contribution along with interest on the amount on retirement.

Employee contribution to EPF can be deducted from total taxable income under section 80C. The maximum limit for tax deduction in respect of EPF is up to Rs 1.5 lakh.

National Pension Scheme

National Pension System (NPS) is a voluntary defined contribution pension system like PPF and EPF enjoying EEE (exempt-exempt-exempt) status in India where the entire corpus is exempt from tax on maturity and the entire amount of pension withdrawal is tax free.

Health insurance

Health insurance ensures that you can deal with health problems that come your way more efficiently with a financial cushion. Health is the most important aspect of life, it cannot be avoided. And, when a health problem comes your way, an insurance policy will protect you financially.

Section 80D allows you to claim income tax exemption on premium paid for one or more health insurance policies purchased for your family (spouse and children) and parents. Policyholder Rs. Can avail deduction up to 25,000 per annum against the premium paid. This deduction can be availed on health insurance taken for you, your spouse and dependent children. Limit Rs. will increase to 50,000 if you or your spouse is above 60 years of age.

If you are paying for the health insurance scheme you got for your parents, you can claim an additional amount of Rs. 25,000 and if the parents are senior citizens the limit is Rs. 50,000. This limit also includes a coverage of Rs. 5,000 towards expenses for health check-up of family members including parents, spouse and dependent children.

Term Insurance

Term insurance is a life insurance plan that provides financial coverage to the beneficiary of the insured person for a specified period of time. In the event of death of the policyholder during the policy term, the beneficiary can claim the death benefits from the insurance company. Term life insurance or term assurance provides coverage benefits as a lump sum or at a fixed rate of payment for a limited period of time. Term insurance policy with deduction under Section 80C of Income Tax Act Rs. Offers a further deduction of up to 1.5 lakhs. Death benefits received by the nominee are also tax free.

Senior Citizen Savings Scheme

The Senior Citizen Savings Scheme (SCSS) is mainly for the senior citizens of the country above 60 years of age. This long-term savings opportunity is great for senior citizens as it provides a regular income stream with tax saving capabilities.

Under Section 80C Rs. A tax deduction of up to 1.5 lakhs can be availed. Besides, there is no tax liability on the principal amount if it is withdrawn by the legal heir or nominee after the death of the account holder.

Unit Linked Insurance Schemes (ULIPs)

Unit Linked Insurance Products (ULIPs) offer you insurance cover as well as Tax Saving investments bundled into a single investment plan. ULIPs give you the option of investing in stocks, bonds or mutual funds.

This is how it works. When you invest in a ULIP, the company invests a portion of the premium in equity, debt or other securities while the remaining amount is used to provide insurance cover.

The premium paid for this type of policy is eligible for tax Saving Investment deduction under section 80C. Further, returns from policies on maturity are exempted from income tax under Section 10(10D). You can call this a dual benefit.

Equity-Linked Savings Scheme (ELSS)

Equity Linked Savings Scheme (ELSS) is a type of equity mutual fund that invests at least 80% of its total amount in equity and equity-related instruments. ELSS has a mandatory lock-in period of 3 years during which you cannot withdraw any amount. An ELSS is eligible for tax exemption under Section 80C of the Income Tax Act, which allows a maximum tax Saving Investment exemption of Rs. 1.5 lakh.