An individual does investment so that he can save money for his future. Investment options are the financial instruments which offer you investment opportunities so that you can create wealth. So in this article you will find out best investment options to save income tax. Since our government has launched several investment plans in which one can invest and can save tax.
Everyone now a day invests money not with the motive of just maximizing their wealth but also to save tax. Since when one invests money without taking into account the tax feature, then he or she will have to pay tax on his earnings made by him or her. This leads to not fulfilling the wealth maximization motive of yours.
Furthermore, there are a number of investment options to save income tax under section 80C of Income Tax Act. Some of them are PPF (Public Provident Fund), Life Insurance Plans, National Saving Certificate (NSC), Pension Funds, Fixed Deposit with tenure of 5 years, Senior Citizen Savings Schemes (SCSS) etc.
But before going for any kind of investment plan it is very important to keep certain points in your mind. Some of those points are:
- First of all it is very important to keep an account of the total amount of deductions that you will get from your gross income.
- Secondly, figure out what all fresh investment you need to make for saving tax.
- Thirdly, you will have to find out investment instruments that you will use for saving tax.
- Fourth, you will even have to decide the tenure of your investment.
- Lastly, calculate what will be the ratio of the tax charged on your income gained via investment.
Investment Options To Save Income Tax
1. Public Provident Fund (PPF)
Investment made in PPF i.e., Public Provident Fund is said to be most safest and best long term investment option. Well Public Provident Fund is one of the most common form of investment which comes in everyone’s mind when they wish to start investment. Same happened with me when I started investing money I started with investing in PPF.
The tenure of investing in Public Provident Fund is of 15 years. So it is ideal for salaried people as well as for business. One can open his/her PPF account with a monthly SIP of Rs. 500 or Rs 1,00,000 annually. Under section 80C of Income Tax Act, earnings made from PPF account is completely exempt from tax.
2. National Saving Certificate (NSC)
National Saving Certificate is another tax saving scheme which provide you tax exemption under 80C of Income Tax Act. The tenure of NSC is 5 years or 10 years and minimum investment is done in the multiples of 100. There is no upper limit in investment amount in these certificates. The interest that you earn from National Saving Certificate is compounded annually. One can even apply for loan from their investment made in NSC.
For example you have invested 4 lakhs rupees in NSC Issue VII. Now in such a case you can avail tax benefits only on 1.5 lakhs. Now there is an exemption to this, which says that provided that you have not invested money in other tax saving instruments like mutual funds and life insurance. If you have invested money in other instruments too then you will not be liable for this benefit.
3. Senior Citizen Saving Scheme
SCSS is a scheme which is eligible of senior citizen of 60 years and more. The interest rate offered in Senior citizen saving scheme is 9.30 per annum. The maturity period of this scheme is 5 years with expandable time period of 3 years.
4. Life Insurance
Life insurance premium is also exempt from tax under Section 80C of Income Tax Act. So now you know why your parents apply for life insurance policies. Because it is deductible from their taxable income. Maximum amount of exemption provided by the life insurance policy is of Rs 1,50,000.
5. Pension Funds
An individual can enjoy tax benefits by investing in Pension Funds. So if you are looking for retirement plan then pension funds are best investment options to save income tax. The maximum deduction that one enjoy is of Rs 1,00,000 under Section 80CCC which is a part of 80C.
6. Post Office Time Deposit With a Tenure of 5 years
POTD Scheme are similar to the bank deposit schemes. Post Office Time Deposit Scheme is also safe form of investment with which you can get tax relaxation under section 80C. To enjoy tax benefit on post office time deposit scheme you will have to invest for atleast 5 years.
7. Fixed Deposit with a Tenure of 5 years
To enjoy tax benefit on fixed deposit you will have to apply for a fixed deposit which is having lock-in period of 5 years. Ask your bank to provide you fixed deposit which offer you tax exemption. If you do not apply for loan and premature withdrawal then you will receive interest rate of 8.5%.
Minimum amount of investment that is required to be made in tax saving fixed deposit is of Rs 100. While the maximum amount of investment that can be made is of Rs 1.5 lakhs.