” In this world, nothing can be said to be certain, except death and taxes “

– Benjamin Franklin

In another few months, we will start the new year 2019 and tax payers will be busy looking at the best tax saving investments in FY 2019-2020 under various sections of the Income Tax Act.

Smart investors would save tax by investing in best tax saving options and get higher returns as well.

Here is the list of top tax saving investments options available in 2018 in India to save tax under income tax act.

Best Tax Saving Instrument

1. Equity Linked Saving Scheme (ELSS)

ELSS is a dedicated equity oriented mutual fund scheme that allows investors to save tax. Along with tax saving, it also provides an opportunity for long-term capital appreciation.

15 Things to Know About ELSS Funds

ELSS are an excellent way to grow your money and save tax at the same time.

Like any other equity mutual fund, the best way to invest in ELSS is through the Systematic Investment Plan (SIP) mode of investment. You must plan ahead and spread your investments throughout the year to reduce the risk of entering the market at a wrong time.

Check out the best tax saving funds of 2019

Rate of Interest : 10-13% annually (approx)

Lock-in Period: ELSS funds have a lock-in period of 3 years.

Eligibility: Can be opened by Resident Indian individuals.

Minimum Limit: Minimum investment limit varies from fund to fund. You can starts off with ₹500-₹1000 in SIP plan.

Maximum Limit: No upper limit

Tax Treatment : Tax deductions under Section 80C

2. Public Provident Fund (PPF)

PPF are long-term investments are backed by the government of India.

Rate of Interest : 8% Per annum

Lock-in Period: PPF account has a lock-in period of 15 years. Partial withdrawals from PPF account is allowed after 7 years.

Eligibility: It can be opened by a resident Indian, salaried and non-salaried individual. A HUF cannot open a PPF account.

Minimum Limit: ₹500

Maximum Limit: ₹1,50,000

Tax Treatment : Tax deductions under Section 80C

PPF Account: List of 21 Banks Supporting It, PPF Interest Rate, and the Only 7 Things You Need to Know About PPF

3. Senior Citizen Savings Scheme (SCSS)

The Senior Citizens Savings Scheme (SCSS) offers income on regular basis along with top-notch safety and tax saving benefits, making it a popular product for those over 60 years of age.

Post-retirement people in general are looking for investment avenues to park their retirement corpus.

They are hesitant to put their hard-earned money in equities and other risky instruments which carry capital loss risk, or products which come with a long lock-in period and don’t offer any income till maturity.

This is the best option for them.

Rate of Interest : 8.5% Per Annum

Lock-in Period: SCSS have lock-in period of 5 years.

Eligibility : Can be opened by a resident Indian and he/she must be aged 55 years or above, but less than 60 years, provided he/she has retired from his/her employment as per VRS/superannuation and must open said SCSS account within one month of the receipt of retirement benefits

Minimum Limit: ₹500

Maximum Limit: ₹1,50,000

Tax Treatment : Tax deductions under Section 80C

Read about the 4 steps that will make retirement planning super easy for you

4. Sukanya Samriddhi Yojana (SSY)

This is a small deposit scheme for the girl child launched as a part of the Beti Bachao Beti Padhao campaign launched by central government.

One of the reasons why this scheme has become popular is due to its tax saving benefit.

This scheme is one of the most popular schemes by the Government of India. The scheme aims at improving the plight of a girl child in the country.

Rate of Interest : 8.1% per annum

Lock-in Period: Up to 50% of the deposit amount can be prematurely withdrawn once the girl reaches the age of 18 years

Eligibility : Parents/guardians can open an account in the name of a girl child till she attains the age of 10 years

Minimum Limit: NA

Maximum Limit: ₹1,50,000

Tax Treatment : Tax deductions under Section 80C

Here is everything you need to know about Sukanya Smariddhi Yojana (Complete with a calculator)

5. Fixed Deposits (FD)

FD is a financial instrument provided by banks or NBFC’s which provides investors with a higher rate of interest than a regular savings account, until the given maturity date.

Why are Indians Obsessed with Fixed Deposits?

It may or may not require the creation of a separate account for taking benefit of FD.

Rate of Interest : FD interest rate across different banks range from 5.5% to 7.75% per annum

Lock-in Period: Fixed Deosits have lock-in period of 5 years.

Eligibility : Can be opened by Resident Indian individuals.

Minimum Limit: ₹1000

Maximum Limit: ₹1,50,000

Tax Treatment : Tax deductions under Section 80C

6. National Pension System (NPS)

The NPS is a pension scheme that has been started by the Government of India to allow the un-organised sector and working professionals to have a pension after retirement.

Rate of Interest : Interest rate on NPS varies between 9% – 12% per annum

Lock-in Period: Partial withdrawals are allowed after 15 years but under special conditions

Eligibility : Can be opened by every Indian citizen between the age group of 18 and 60.

Minimum Limit: ₹500

Maximum Limit: No Limit

Tax Treatment : Tax deductions under Section 80C

NPS (National Pension Scheme) In 10 Simple Points
7. Employee Provident Fund (EPF)

Can a business with a great product may not be a great stock to buy?

EPF is a retirement benefit scheme that is available to all salaried employees in India. This amounts to 12% of basic salary + Daily Allowances, that is deducted by an employer and deposited in the EPF or other recognized provident fund.

Rate of Interest: Interest rate on EPF is 8.55% per annum

Lock-in Period: Can withdraw PF balance after 2 months of leaving job and does not take up employment within two months with an employer covered by PF Act

Eligibility : Can be opened by employee with basic salary greater than ₹15,000 /month

Minimum Limit: Both employer and employee have to contribute a minimum 12% of Basic Pay + D.A.

Maximum Limit: No Limit

Tax Treatment : Tax deductions under Section 80C

Govt to tax EPF – Should you be worried?

8. United Linked Insurance Plans

ULIPs are a mix of insurance and investment.

A part of the amount invested in ULIPs is used to provide insurance and the rest of the amount is invested in the Indian share markets.

Lock-in Period: ULIPs have lock-in period of 5 years.

Eligibility : An Indian investor can buy ULIP for self or spouse or child

Rate of Interest : Interest rate on the ULIPs varies from 9% – 11% in accordance with market

Minimum Limit: No Limit

Maximum Limit: ₹1,50,000

Tax Treatment : Tax deductions under Section 80C

ULIP Vs ELSS: Which Investment Will Give you the Maximum ROI?

9. Life Insurance

Life insurance is the barricade of a financial plan because it safeguards all the goals of the individual even if he is not around.

The Most Important Things To Know About Term Insurance

But this purpose is best served by a pure protection term insurance plan rather than a costly traditional policy that gives back money at periodic intervals or provides a huge corpus on maturity.

Lock-in Period: Life insurance plans have a lock-in period of 5 years.

Eligibility : An Indian investor can buy life insurance for self or spouse or child

Rate of Interest : Interest rate on the life insurance varies from 4% – 5% in accordance with market

Minimum Limit: No Limit

Maximum Limit: ₹1,50,000

Tax Treatment : Tax deductions under Section 80C

The 3 types of Insurance Policies you Need at Every Age

10. Health Insurance Premium

Health Insurance

Health Insurance

Under Section 80D of Income Tax Act, premiums for ensuring the health of self, spouse and dependent children are eligible for up to ₹ 25,000 deduction in a financial year.

Paying for parents’ cover makes you eligible for an additional deduction of up to ₹25,000. If at least of one the insured is above 60 (a senior citizen for tax provisions), the deduction limit in that case is ₹30,000.

Everything You Need to Know About Health Insurance: Explained in 10 Simple Points

These limits can include expenses of up to ₹5,000 on preventive health check-ups. Cash payments for health check-ups are eligible for income tax deduction but health insurance premiums paid in cash are not.

Lock-in Period: Health insurance plans have a lock-in period of 5 years.

Eligibility : An Indian investor can buy life insurance for self or spouse, child or parents

Rate of Interest : NA

Minimum Limit: No Limit

Maximum Limit: ₹55,000 if his age is below 60 while parents age is above 60.

Tax Treatment : Tax deductions under Section 80D

Conclusion

Here is a detailed guideline on how to save tax.

Planning of tax saving should not be done in isolation. You must align the larger investment plan with tax saving instruments to maximize returns. Though this should be done at the start of the financial year, it is still not too late.

While choosing the right tax saving instruments, among several other factors such as safety, liquidity and returns, make sure you understand how the returns would be taxed.

If the income earned is taxable, the scope to make money over the long run gets constrained as taxes will eat into your returns.

Happy Investing!