With so many tax saving investment options available, you must be wondering where to invest money for good returns in the future. The choice of financial instrument depends on your risk appetite and your goal for contributing the corpus. From short-term tools with moderate risk to long-term avenues with low risk, you can opt for the ones that give you maximum benefits. But something that you should remember while investing is that the new tax regime doesn’t allow you to claim tax deductions. To get income tax benefits, you would have to opt for the older tax system. So, let’s look at some investment options with tax-free returns.
6 Tax-Saving Investment Options
Here are six options that you can go for including some long term investment plans and some with lock-in periods.
I. Public Provident Fund (PPF)
Public Provident Fund or PPF is a scheme initiated by the government having a lock-in period of 15 years. The minimum investment amount is INR 500 and maximum is INR 1,50,000 per year. With PPF, you can enjoy the power of compounding with a lucrative interest rate for 15 years. Withdrawing the invested corpus is not allowed but you can make partial withdrawals.
Tax Benefit: You can claim the contributions made towards PPF under Section 80C of the Income Tax Act, 1961 which has a cap of INR 1,50,000. Also, the returns after maturity are exempt from taxes giving you a dual tax advantage.
II. Life Insurance
Life insurance plans provide you with a life cover that secures your loved ones financially in return for paying premiums. There are pure life cover plans and policies with a savings component. If you opt for insurance plans which allow savings, you can fulfil wealth creation goals. You can also opt for ULIPs (Unit-Linked Insurance Plan) which has an investment component.
Tax Benefit: You can claim premiums paid towards life insurances for self, children or your spouse under Section 80C. Also, the maturity and death benefit can be claimed under Section 10(10D).
III. Equity-Linked Savings Scheme (ELSS)
Equity-Linked Savings Scheme or ELSS is a mutual fund scheme with a lock-in period of 3 years. The corpus in this scheme gets majorly invested in equity funds. With the power of compounding, you can gain handsome returns in the future.
Tax Benefit: The contributions made towards ELSS can be claimed under Section 80C with a maximum cap of IN 1,50,000.
IV. Fixed Deposit
You can choose to opt for a fixed deposit in a bank which comes with a lock-in period of 5 years. This is a low-risk financial instrument with fixed returns where premature withdrawal is not allowed.
Tax Benefit: The amount contributed can be claimed under Section 80C. But the interest earned on the corpus is taxable and isn’t eligible for tax-saving benefits.
V. Senior Citizens Savings Scheme (SCSS)
Senior Citizens Savings Scheme or SCSS is a scheme suitable for senior citizens who want to plan their retirement. To invest in this scheme, you need to be at least 60 years of age. In the case of voluntary retirement, you can opt for it after the age of 55. A one-time deposit has to be made which goes into a 5-year lock-in.
Tax Benefit: The contribution towards SCSS qualifies for deductions under Section 80C. But the interest earned on the corpus is taxable.
VI. National Pension System (NPS)
National Pension Scheme or NPS is a pension program for employees working in the private sector who do not have a pension system. NPS was initiated by the Government of India as an opportunity for such employees to have some savings for their retirement. This an investment tool for working professionals from the age group of 18 to 60. The corpus remains in a lock-in till you reach the retirement age but partial withdrawals are permitted.
Tax Benefits: The money invested in NPS can be claimed under Section 80C of the Income Tax Act, 1961. An extra amount of INR 50,000 can also be claimed under Section 80CCD.
With this, you can now stop wondering where to invest money and begin contributing towards any of the above mentioned online investment plans.