Best tax saving investments under Section 80C: ELSS, NSC, NPS, PPF, FD, ULIPs

Looking to reduce your taxable income by Rs 1.5 lakh? Consider these investments under Section 80C of the IT Act.

Best tax saving investments under Sec 80C for high returns in FY 2022-23

With the financial year 2021-22 ended and the new financial year setting in, investors are keen to find out where to invest to save tax in the new financial year. Tax saving investments under Section 80C of the Income Tax Act lets you minimise your tax outgo and grow more wealth in the long run. If you want to select the best tax saving investment plans in India, here are the top 5 tax saving investments that qualify for relief under Section 80C.

Marked-Linked Products:

1. Equity Linked Saving Scheme (ELSS)

ELSS is a type of mutual fund. Being one of the best tax saving investment options, it has a mandatory 3-year lock-in period. As per Section 80C, certain conditions must be met to avail of the maximum tax deduction on funds under ELSS. Please note that if the principal amount invested in ELSS is less than Rs 1.5 lakh, it is exempted from taxation. And if the capital gains amount to less than Rs 1 lakh, it is not charged with long-term capital gain tax. The five-year return on various ELSS funds ranges generally from 12-18%.  

Also Read: Tax-Saving Components Of Your CTC

2. ULIP

ULIP combines investment with equities with the benefit of insurance. The lock-in period of ULIP is 5 years. It is eligible for 80C tax benefits and the maturity is exempt under section 10(10D) of the Income Tax Act. The five year return on various ULIP policies presently vary from 7% to 27%. This is because the portfolio of each fund differs, as does their financial performance.

3. National Pension Scheme (NPS)

The government launched NPS as a dual benefit scheme, i.e., pension cum investment scheme to provide financial security to the older section of society. A tax deduction on NPS can be claimed up to Rs 1.5 lakh on the contribution. Section 80CCD (1) allows tax free investment to employees up to 10% of their salary, and Section 80CCD (1B) allows self-employed investors to claim an additional amount of Rs 50,000. Section 80 CCD(1) comes under the scope of Section 80C. Leading NPS funds have generated a 5-year return of around 9% per annum.

To sum up, a deduction of Rs 1.5 lakhs under section 80 CCD(1) and an additional deduction of Rs 50,000 under section 80CCD(1B).

Fixed Income Products:

4. National Savings Certificate (NSC)

NSC is a tax-saving investment that is supported by the Government of India. It can be opened at any post office branch. NSCs come with a 5-year lock-in period and give a decent return. If you reinvest the matured NSC along with interest gained on it, you can again apply for deductions under Section 80C. Otherwise, the interest is taxable under the head ‘Income from Other Sources’. The scheme offers 5-year and 10-year certificates and presently offers an interest of 6.8% per annum. 

Also Read: What is Pin Money And How Does A Woman Save Taxes On The Same?

5. Public Provident Fund (PPF)

PPF is another popular tax-saving instrument and comes with a minimum tenure of 15 years. The self-contribution portion has tax benefits under Section 80CCD(1), which falls under 80C. The government declares the interest rate for PPF every quarter (presently 7.1%), and this is fixed for the period. You can invest a maximum of Rs 1.5 lakh in a financial year and the total amount is exempted from tax. To start with, you can open an account with a minimum of Rs 500. 

6. 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 fully taxable under this scheme, and is presently between 5.25% and 6.25% among leading banks. Tax saving FDs are also an easy solution for individuals who were late to do their tax planning and are searching for investments to save income tax.

Also Read: Bank FD Vs FD Offered By NBFC

The schemes outlined above should help you select the best tax saving investment as per your needs and also reduce your tax liabilities. Choose from these tax-friendly investments and save money on taxes each year!

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