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5 Popular Tax-Saving Schemes in India

What are India's top tax-saving programs? To save as much money as possible, learn about India's five most common tax-saving investments.

  • Feb 15, 2022

Investments help fight inflation, build saving habits and grow our money in the long and short term. But how to manage investments is a concern for almost everyone. Not only that, but tax saving is also another subject on which we all like to focus on. Thankfully, with the finest tax-saving plans in India, you can both save and earn money. The commencement of the fiscal year is the best time to plan for tax-saving investments as they will ensure a year-long profits and tax savings plan.

While we all want to save money on taxes, only a few are successful. The reason for this could be a lack of information or difficulties in incorporating the best-suited option into your investing strategy. Hence, in this article, we have compiled a list of the greatest tax-saving investing options in India to assist you in comparing and making an informed decision.

Unit Linked Insurance Plans or ULIPs

One of the most prominent investment strategies in India is the ULIP. It ensures that in the event of the policyholder’s death, one’s family is financially secure. The taxpayer can profit from the income tax act by acquiring a life insurance policy. The premium paid toward acquiring a life insurance policy is eligible for a deduction of up to ₹1.5 lakh under section 80C of the IT Act, 1961. Furthermore, income earned on the policy’s maturity is tax-free under section 10 (10D). Additionally, if the premium is less than 10% of the total assured, the income is tax-free. In the instance where the money is given to the nominee, the money is treated as tax-exempted in the nominee’s hands.

Public Provident Fund or PPF

PPF has long been a popular tax-saving plan for taxpayers. The fact that PPF comes within the exempt tax status is one of the main reasons for its popularity. PPF accounts can be opened at a bank or a post office. The amount invested by taxpayers throughout the financial year can be deducted as per section 80C of the IT Act. The maximum investment amount in PPF is ₹1.5 Lakh which can be claimed for deduction. The return and maturity amounts are tax-free because PPF is exempt. PPF accounts have a 15-year lock-in term and provide investors with the following alternatives that are increasing the tenure by another five years or withdrawing account proceeds.

Sukanya Samriddhi Yojana or SSY

One of the most prominent tax-saving plan programs is the Sukanya Samriddhi Yojana. The government of India launched it in 2015 as a component of the Beti Bachao Beti Padhao campaign. It had a significant impact on the public. The scheme allows for a fixed-income investment in which the customer can make regular deposits while also earning interest. Sukanya Samriddhi Yojana investments are also eligible for deductions as per section 80C of the Income Tax Act.

National Pension Scheme or NPS

The National Pension Scheme has grown in popularity as a tax-saving plan over the past few years. It’s a tax-saving alternative that both government and private employees can make use of. It allows the depositor to create a retirement fund while also receiving monthly income. The depositor’s money is invested in various schemes, including the stock market. Tier-1 and Tier-2 NPS accounts are the two categories of NPS. The tier-1 account comes with a lock-in period that lasts until the subscriber turns 60 years old. The subscriber’s contributions to tier-1 are offered tax benefits under sections 80CCD (1) and 80CCD (2) (1B). Tier-2 accounts are purely voluntary, allowing the user to withdraw funds if and when they so choose.

Equity Linked Savings Scheme or ELSS

ELSS are mutual funds that invest a significant portion of your holdings in stocks. In addition, the fund has a three-year statutory lock-in period, which is the lowest among all investment products. Investments in ELSS funds are eligible for a deduction of up to ₹1.5 lakh as per section 80C of the IT Act, 1961. The deduction is available for both lump-sum investments and those made under a SIP. However, this investment comes with certain risks.

Now that you know about some of the most popular tax-saving plans in India go ahead and invest today! Your decisions today can make your tomorrow much better!

How to plan your tax-saving investments for the year?

The tax-saving period for both salaried and non-salaried taxpayers begins on April 1. A wise tax-saving investment should aim to generate income free of taxes and provide tax exemption.

It would be a wiser strategy to start investing in the first quarter of the fiscal year rather than waiting until the end of the fiscal year and using ad hoc tax-saving instruments, giving taxpayers more time to plan their investments and receive the highest possible returns. When choosing the best tax-saving investment strategy, factors including the fund’s safety, liquidity, and magnitude of returns should be considered.

Instead of waiting until the end of the fiscal year and employing ad hoc tax-saving mechanisms, it would be a wiser course of action to begin investing in the first quarter of the fiscal year. This would give taxpayers more time to plan their investments and get the best results. The fund’s safety, liquidity, and rate of return should all be considered when determining the ideal tax-saving investment strategy.

 5 popular and efficient tax saving schemes in India

Tax Saving Investments for Senior citizens and Retired Persons

As there is no longer a monthly salary coming into your account after retirement, there needs to be a consistent flow of money to cover your usual expenses. What choices are available to seniors, then?

1.Annuity plans are an option for senior citizens since they provide a steady flow of funds into your account and enable tax savings. The government’s “Senior Citizen’s Saving Scheme,” which is available to persons over 60 via post offices or banks, is one such programme. In addition to Section 80C tax benefits, SCSS has the benefit of early withdrawals.

2.Age-related annuity programs are available from insurance firms, provides a range of annuity options.

3.The possibility to withdraw tax-free gains at maturity under Section 10D and an exemption of up to ₹1.5 lakh from premiums paid under Section 80C make Unit Linked Insurance Plans (ULIPs) an excellent choice for generating retirement funds.


Do I have to pay taxes on the investments?

Short-term capital gains in equity funds are taxed at a rate of 15% plus a 4% cess if units are sold before one year has passed. The long-term capital gains tax rate for equities funds is 10% plus 4% cess if the gain within a fiscal year exceeds ₹1 lakh. Long-term capital gains are totally tax-free, up to ₹1 lakh.

How can I reduce my taxable income?

Everyone aspires to increase their savings and create a secure financial future that will enable them to support themselves even without a regular income. Any successful financial strategy must include savings, and for a good reason. But paying income tax on every dollar of taxable income might deplete your savings and leave you with less cash to use for long-term planning.

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