Best Tax Saving Investments in India

Tax-saving investment, as the name implies, helps you save taxes and build wealth over time. Smartly planning your tax-saving investments can make a huge difference to your financial health. For you to achieve your financial goals efficiently, the Indian government offers several tax-saving investments under various sections and provisions of the Income Tax Act.

Let’s find out the best investment available to help you maximise your tax savings.

What Are Tax-Saving Investments?

Tax-saving investments are financial instruments that come with tax benefits, offering deductions to reduce one’s tax liabilities per the Income Tax provisions. Some of the popular sections through which taxpayers can claim deductions under the old tax regime are:

• Section 80C: Covers most traditional investment options like Public Provident Fund (PPF), Equity Linked Saving Scheme (ELSS), insurance premiums paid, fixed deposits, etc.
• Section 80D: Offers deductions for health insurance premiums.
• Section 80G: Donations to eligible charities.
• Section 24(b): Tax benefit on home loan interest payments.

Under the new tax regime, introduced for FY 2025-26, there is no income tax up to ₹12 lakhs. Based on your financial goals and tax-saving preferences, you can now choose between the old and new tax regimes.

Best Tax Saving Investments and Schemes in India

Below is a list of the best tax savings investment options available in India:

Public Provident Fund (PPF)

PPF is an excellent tax investment choice for those who prefer low-risk and assured returns. Some of the features of this investment include:

• PPF is a long-term investment option which the government backs. 
• Offers an interest rate of around 7.1% (subject to quarterly revisions).
• The interest earned is tax-free.
• PPF account comes with a lock-in period of 15 years.
• Eligible for a deduction under Section 80C.

Equity Linked Saving Scheme (ELSS)

ELSS is ideal for investors with a higher risk appetite seeking both tax savings and growth. Some of the features are as follows:

• ELSS is a mutual fund that primarily invests in equities.
• Offers tax benefit under Section 80C up to ₹1.5 lakh.
• The lock-in period is 3 years, which is the shortest among all 80C investments.

• Due to equity exposure, returns are high compared to traditional tax-saving options.

Employee Provident Fund (EPF)

EPF is an essential part of tax planning for salaried individuals as it ensures financial security post-retirement. The key features of EPF include the following:

• It is a mandatory form of investment for salaried employees.
• Eligible for tax benefits under Section 80C.
• The current rate of interest is around 8.6%.
• The maturity amount is tax-free if the holding period is over 5 years.

Senior Citizens Savings Scheme (SCSS)

The Senior Citizen Saving Scheme is designed for retirees aiming at capital protection along with regular income. The features of SCSS have been listed below:

• Eligible for individuals above 60 years.
• The current applicable rate of interest is 8.2%.
• Investment qualifies for deduction under Section 80C.
• Interest earned is taxable
• The lock-in period is 5 years (extendable by 3 years).

5-Year Tax Saving Fixed Deposits

Fixed deposits are a safe tax-saving option for risk-averse investors. The key features of these investments are as follows:

• These are offered by banks and NBFCs.
• Interest rate ranges between 5.5 and 7.75 %.
• Comes with a lock-in period of 5 years.
• The premium paid (principal amount invested) is eligible for deduction under Section 80C.
• However, interest earned is taxable.

Life Insurance Premiums

Life Insurance provides financial protection for your family and offers tax benefits. The key features of the investment have been listed below:

• Life insurance premiums are eligible for deduction under Section 80C.
• The maturity proceeds are generally tax-free under Section 10(10D).
• Both traditional endowment plans and ULIPs (Unit Linked Insurance Plans) are popular choices.

National Pension System (NPS)

NPS is ideal for building a retirement corpus while enjoying tax benefits today. The features of these investments include:

• A government-regulated pension scheme that is market-linked
• Offers an additional deduction of ₹50,000 under Section 80CCD(1B) over and above the ₹1.5 lakh limit under 80C.
• Partial withdrawals after 3 years for specific purposes like marriage, education, or house purchase.
•  60% of the corpus on maturity is tax-free, and 40% is tax-free if invested in annuities.

Important Income Tax Savings Tips

Some essential tips to save smartly on taxes are

• Plan Your Tax-Saving Investments Early: Do not rush into investments until tax declaration. Start planning at the beginning of the financial year.
• Diversify Your Investments: Consider a mix of ELSS, fixed deposits, PPF, and insurance to ensure both growth and stability.
• Health Insurance Premiums: Under Section 80D, the premium paid towards a health insurance policy provides an additional tax rebate of up to ₹25,000 (₹50,000 for senior citizens).
• Use the Standard Deduction: Salaried employees are entitled to a standard deduction of ₹50,000 (₹ 75,000 in the new tax regime) without having to submit proof.
• Invest in PPF and SCSS for Safety: Risk-averse investors looking for financial security with guaranteed returns should go for the Public Provident Fund (PPF) and the Senior Citizens Savings Scheme (SCSS).
• Claim Home Loan Benefits: Under Section 24(b), interest payments on home loans are eligible for deductions up to ₹2 lakh annually.

Conclusion

Through tax planning, you do not just reduce your taxable income, but also secure your financial future. By wisely investing in instruments offering tax benefits under Section 80C, 80D, and other sections, you can save a significant amount of money and grow your wealth steadily.

With Torus Digital, enjoy both the journey and the destination of financial freedom through effective tax planning!