Top Tax Saving Investments in India

Paying income tax is a big responsibility for every Indian who is working these days, but it doesn’t mean you can’t reduce your tax burden. The Indian Income Tax offers to save taxes through smart investments and if you invest wisely you cannot only save taxes but also grow your wealth over time. 

In this article, we will explore the Top 10 Tax Saving Investments in India. No matter if you’re a salaried employee, a freelancer, or a business owner, these types of investments can help you pay less tax while also help you build a secure future.

Top 10 Tax Saving Investments in India

Equity Linked Savings Scheme (ELSS) 

ELSS is one of the best tax-saving investments in India. It is a type of mutual fund that puts your money into stocks or shares. 

When you invest in ELSS, you can reduce your tax income under Section 80C of the Income Tax Act. This means you could pay less income tax while also growing your money over time. 

Key Feature:

• It offers you tax benefit up to ₹1.5 lakh under Section 80C
• It has the shortest lock-in period of just 3 years compare to all other investment option under Section 80C
• It has the potential to give you high returns, but the risk of losing money is also very high because of market ups and downs.  

Therefore, if you’re willing to take some risks, then ELSS is the best investment scheme for you to get high returns. It combines tax-saving with wealth creation.

Public Provident Fund (PPF)

PPF is backed by a government savings scheme and it is known for its long-term benefits. You get a good interest rate, and you don’t have to pay any tax on the interest you earn or the money you get at the end. 

Key Features:

• It offers tax deduction under Section 18C up to ₹1.5 lakh
• You cannot withdraw money for 15 years after you invest it
• You don’t have to pay any tax on the the interest you earn
• It is completely backed by the government

Hence, it’s a great choice for people who want to grow their money safely over a long time, especially good for retirement plans.

National Pension System (NPS)

NPS is also a government-backed pension plan specially designed to provide income during retirement. It offers tax benefits under Section 80C and Section 80CCD(1B). 

Key Features:

• It offers tax deduction up to ₹1.5 lakh under Section 80C and additional ₹50,000 under 80CCD(1B)
• You’re allowed to withdrawal some of the money after 3 years
• Your money is invested in both equity and debt, helping balance risk and returns
• When the investment ends, part of the money you get is tax-free, and part may be taxed. 

Hence, it is the best decision to invest, if you’re planning for your retirement and want to save extra on tax. 

Employee Provident Fund (EPF)

EPF is a compulsory scheme for salaried individuals. Both employee and employer add money to this fund every month. It gives tax benefits and helps save for retirement.

Key Features:

• It provide tax deduction under Section 80C for contribution of employee’s
• The contribution of employer is tax-free up to a certain limit
• If you keep the investment for 5 years or more, you don’t have to pay tax on the interest earned or the final amount you get

It starts automatically for salaried employees and helps their money grow well over time through compounding. 

Tax-Saving Deposits

These are special fixed deposits from banks that you can’t take out for 5 years. They also give you tax benefits under Section 80C.

Key Features:

• It offers tax deduction up to ₹1.5 lakh under Section 80C
• They provide you fixed returns and the different banks offer different interest rates
• You have to pay tax on interest you earn

If you’re looking for stable and predictable returns without any market risk, this is a safe option you can consider. However returns are usually lower than Equity Linked Saving Scheme. 

Sukanya Samriddhi Yojana (SSY)

SSY is a special savings scheme provided for girl children. It offers one of the highest rates among government schemes and comes with ideal tax benefits. 

Key Features:

• It also offers tax deduction under Section 80C up to ₹1.5 lakh
• You don’t have to pay any taxes on the interest you earn or the final amount you get when the investment ends
• It can be opened for a girl child below 10 years
• The investment ends 21 years after you open the account

This scheme is perfect if you have a daughter, and you want to secure her future while saving taxes. 

Life Insurance Premiums

The money you pay for life insurance for yourself, your spouse, or your children can reduce your taxable income under Section 80C.

Key Features:

• It offers tax deduction up to ₹1.5 lakh under Section 80C
• This premium plan applicable to term insurance, endowment plans (Mix of insurance and savings), and ULIPs (Unit-Linked Insurance Policy)
• The money you get from a life insurance policy is a tax-free under Section 10(10D)

Apart from the tax benefits, it provides you financial security to you and your family in case of any emergency events. 

Unit Linked Insurance Plans (ULIPs)

ULIPs provides you the combination of investment and insurance plans. They give returns based on the stock market, provide life insurance protection, also help you save money on taxes. 

Key Features:

• It offers tax benefits under Section 80C
• The profit you earn and final amount you get at the end are tax-free as per Section 10(10D)
• You cannot withdraw your money for 5 years after investing
• You can choose to invest your money in either stocks, debt, or a mix of both, based on your preference. 

It is a great choice for long-term financial planning if you’re looking for insurance and investment at the same time. 

Senior Citizen Savings Scheme (SCSS)

This scheme is best for the senior citizens, aged 60 years or above and it is backed by the government. It offers regular income and exciting tax benefits.

Key Features:

• You can reduce your taxable income by up to ₹1.5 lakh if you invest under Section 80C
• The investment lasts for 5 years, but you can extend it for 3 more years if you want
• You have to pay tax on the interest, but it’s usually more than what FDs gives
• You get the interest every three months. 

It is a good option for your retirement planning, if you’re looking for safe, regular income along with the tax benefits.

Health Insurance Premium

While it is not really an investment but buying health insurance can really help you during emergencies and it comes under Section 80D

Key Features:

• It offers you tax deduction up to ₹25,000 for yourself, spouse, and children
• It provide you additional ₹25,000 for your parents if they’re under 60 and for above 60, they provide you ₹50,000
• You can also claim up to ₹5,000 for health check-ups to stay healthy and catch illness early. 

It protects your family from sudden medical emergencies along with the ideal tax benefits too. 

Conclusion

To conclude what’s best for you, here’s a quick comparison of the tax investment plan in India

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FAQs 

What is the maximum tax deduction I can claim under section 80C?

You can claim up to ₹1.5 lakh per financial year under Section 80C by investing in eligible instruments like ELPSS, PPF, EPF, tax-saving FDs, and life insurance. 

What tax-saving investment gives the highest return?

Among all 80C options, ELSS (Equity Linked Saving Scheme) usually offers the highest returns because it invests in the stock market spending on the market performance. 

What is the safest tax-saving investment?

PPF (Public Provident Fund) and Tax-savings Fixed Deposits are among the safest options. They are backed by the government or banks and offer fixed returns.