Tax-saving investment made during a particular financial year can be claimed as deduction under Section 80C for that particular financial year only.
A plethora of tax saving solutions present in the financial market can help you save your tax. As an investor, you should only know which solution is best for you to make the investment to save tax and achieve your financial goal successfully.
Every year you can invest Rs 1.5 lakh in any of the tax savings solutions and claim tax benefit under Section 80C of Income Tax Act. If you fall in the 30% tax bracket, which is the highest tax slab, by investing Rs 1.5 lakh you can save tax for up to Rs 46,350 (Inclusive of cess charges.). The tax-saving investment made during a particular financial year can be claimed as a deduction under Section 80C for that particular financial year only.
For example, if you invested Rs 1.5 lakh in lump-sum in January 2018 in any tax-saving funds, the same amount can be claimed for financial year 2017-18. Similarly, if you invest the same amount in April 2018, the amount can be claimed for financial year 2018-19.
Here are seven tax savings solutions which can help you save tax by investing Rs 1.5 lakh and claiming deduction under section 80C of income tax act:
Equity Linked Savings Scheme (ELSS)
Apart from saving taxes, investing in ELSS mutual funds will give you capital appreciation and also help you in fulfilling your desired long-term financial goal. The schemes under ELSS category has the least lock-in period of 3 years only. The returns are market-linked and vary from scheme to scheme. The schemes are also designed as per the asset classes, therefore, an investor once assessing their own risk profile and taking help from a financial adviser should invest in any kind of such schemes.
Bank Fixed Deposits (Bank FD)
A bank FD taken for a term of 5 years is only eligible for tax saving. Apart from this, banks FD provides safe and guaranteed return. Despite the interest earned is taxable, FDs can serve as a good tax-savings instrument over normal savings account where the interest rates are very low.
Public Provident Fund (PPF)
If you want to accumulate funds for your retirement, PPF serves as one of the best investment avenues. Investing in PPF will give you Exempt-Exempt-Exempt (E-E-E) benefit. This avenue has the highest lock-in period of 15 years among tax saving avenues. It is also one of the safest options for any individual to park their money, as the investment made under PPF account is not seized by any court. The returns are fixed and guaranteed but subject to change on a quarterly basis.
Life Insurance (LI)
Mainly bought for the purpose of protecting one's family. One can save tax under Section 80C as well as under section 10(10) D where maturity benefits also get exempt from income tax. A product like ULIP help in providing protection and investment growth and can be made particular goals.
National Pension System (NPS)
The instrument is designed to get a lump-sum amount and also, a regular income once you retire. This gives you an additional benefit of doing the investment of Rs 50,000 under section 80CCD (1B) of income tax act. It means any eligible individual can invest up to Rs 2 lakh under his/her NPS account and save tax for up to Rs 61800 (inclusive of cess. charges) in the highest tax bracket. Deferred annuity received during the time of retirement is taxable.
National Savings Certificate (NSC)
Investment in the scheme is eligible for tax deduction. There is no limit to making your investment. Also, the certificate can be kept as collateral security to avail loan from banks.
Senior Citizen Saving Scheme (SCSS)
It one of the best tax saving solution for senior citizens, who have reached age 60. If an employee is taking VRS (Voluntary retirement) then he/she can open their SCSS account even the age 55 provided that the account is opened with a month of the date of receipt to avail retirement benefits. The maturity cycle is 5 years and it can be further extended for a period of 3 years if needed.
| Investment | Lock-in Period | Historical Returns | Offers Guaranteed Returns | Tax free Return |
| ELSS | 3 | 12-16%* | No | Yes |
| Bank FD | 5 | 7-9% | Yes | No |
| PPF | 15 | 7.80% | Yes | Yes |
| Insurance | 5 | 0-6.5% | No | Yes |
| NSC | 5 | 7.80% | Yes | No |
| NPS | 10 | 9% | No | No |
| SCSS | 5 | 8.30% | Yes | No |
*The returns are market linked and not guaranteed.
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