Best Tax saving investments over the last 3 years: ELSS, PPF, SCSS, FD, NPS, ULIP

With the onset of the new financial year, investors are in the mood for tax savings. You too must be looking for tax saving investment options that can generate maximum income. You can choose your tax saving products wisely from the following list in FY 22-23 and reduce your income tax liability significantly.

1. Equity Linked Saving Scheme (ELSS)

This is one of the best tax saving options. It comes with a compulsory 3-year lock-in period. Being a mutual fund scheme, returns vary widely depending on the fund you choose. As per Section 80C, there are certain conditions to be met for maximum tax reduction. If the principal amount invested in ELSS is less than Rs 1.5 lakh, it is exempted from taxation. Further, if the capital gain is less than Rs 1 lakh, you are not charged long-term capital gain tax.

Top three ELSS funds based on 1 & 3 year returns

Also Read: Save Tax Under Section 80C With These Four Expenditures

2. Public Provident Fund (PPF)

PPF is another popular tax saving instrument under Section 80C that has a lock-in period of 15 years. The government declares the interest rate for PPF every quarter and this is fixed for the period. You can invest a maximum of Rs 1.5 lakh in one financial year and the total amount is exempted from tax. For FY 2019-20, it ranged between 7.9% and 8%. In FY 2020-21, it was fixed at 7.1% and the same is expected to be maintained in FY 2021-22. Thanks to long-term compound interest calculations, PPF can be a rewarding investment.

3. Senior Citizen Savings Scheme (SCSS)

Under Section 80C, investors can enjoy tax deductions up to Rs 1.5 lakh, making it one of the best investments in tax saving products if you fulfil the following requirements:

Investors aged 60 or above
Investors over 55 who have taken voluntary retirement 
Investors over 50 who are from India’s defence sector 
SCSS rate of return has fallen from 8.6% in 2019-20 to 7.4% in 2020-21. This rate has prevailed till the end of FY 2022.

Also Read: SCSS Or PPF Or SST: Which Savings Scheme Is The Best For You?

4. Fixed Deposit (FD)

A fixed deposit is a popular tax saving investment as it gives returns at a fixed interest rate. Under Section 80C, FDs with a lock-in period of 5 years are exempted from tax. Interest earned is taxable under this scheme, and the interest rate differs from bank to bank. In FY 2019-20, the average FD interest rate hovered around 6.5%, but it’s fallen by 1.5%-2% since the pandemic.

5. National Pension Scheme (NPS)

NPS offers financial security on retirement. Under Section 80C, tax deduction can be claimed up to Rs 1.5 lakh on the principal amount. Section 80CCD(1) allows tax-free investment to employees up to 10% of their salary. Section 80CCD (1B) allows self-employed investors to claim an additional amount of Rs 50,000. NPS has many schemes of Tier-1 and Tier-2, and their returns vary accordingly. The three-year returns of most top pension fund managers ranged from 9% to 12%. The lock-in period for NPS is 10 years but has been reduced to 5 years for individuals without an employee-employer relationship.

6. Life Insurance

The premium paid for a life insurance plan is deductible under the tax slab as per Section 80C. However, the premium should not exceed Rs 1.5 lakh in order to enjoy the benefit. In traditional life insurance policies, the focus is on the life cover rather than the rate of return it offers. For a return-oriented life cover, endowment and money-back policies are better investments. The lock-in period may vary from policy to policy.

In LIC 20 year Moneyback Policy, for instance, the premium is paid for 15 years but the policy matures after 20 years. However, there are survival benefits at the end of the 5th, 10th and 15th years. Endowment policies, on the other hand, have a lock-in period of 2-3 years.

Also Read: How Does Insurance Help You Save Tax?

7. Unit Linked Insurance Plan (ULIP)

ULIP is also considered one of the best tax saving products as exemptions are allowed on both investment and premium payable. Under Section 80C, the investment amount is permitted to tax deduction of Rs 1.5 lakh, with a cap of 10% of the total sum assured as the deductible premium amount. A look at the returns of the leading ULIP policies shows a three-year return ranges between 7% to 20%. The average three-year return among these policies stood at 11%, and their lock-in period is 5 years.

The above-mentioned options will guide you on how to save tax. Choose the right option and reap the growth on your investments!