4 Tax Saving Investment Options

With the tax season round the corner, it should be a matter of interest to explore options to put your hard earned money into plans to suit your investment goals while getting tax deductions as add-on benefits.When investing, it is only good to look for options that not only help save tax but also generate tax-free income. Your tax-saving investments should be in line with your financial plans. During the process of selecting the right tax saver, it is also important for an individual to understand how the returns would be taxed.

While you can always seek expert advice in choosing the right plan to synchronise with your investment objectives and risk appetite, it is wise to have an idea about what you will be diving in, for instance, the ELSS tax benefits, tax-saving fixed deposits, etc. Here we have discussed some plans that come with tax benefits alongside their relative rate of returns to help you in making the right choice.

1. Equity-Linked Saving Schemes

Your funds are invested in equity based shares in equity-linked saving schemes. You get two investment options in ELSS which are either growth linked or dividend linked. In growth based options, you get a fixed return after the maturity of your investment whereas in dividend based plans, dividends are reimbursed periodically on the declaration of the same by the funds. ELSS tax benefits include a complete exemption from taxes up to 1 lakhs. However, a long-term capital gain tax of 10% is charged over 1 lakhs after a period of 1 year. ELSS has the minimum lock-in period of 3 years among most tax saving investment options.

2. Public Provident Fund

The Public Provident Funds are gaining popularity for the gratifying returns and splendid tax benefits that they provide. You can invest a maximum of 12 times in a year with a minimum amount of 500. The lock-in period for PPF is 15 years which is extendable up to 5 more years. In PPF, the tax exemption is for a maximum amount of 1.5 lakhs. PPF are popular schemes also because of their exempt-exempt-exempt nature, that is, taxes are exempted in investments, interests as well as the maturity amount.

3. National Pension Scheme

The invested amount is redeemable after your retirement or after 60 years of age of the investor. Under section 80CCD (1) of the Income Tax Act, investments up to 1.5 lakhs are exempted of tax. You can also avail tax exemption on an additional amount of Rs 50,000 in the NPS.

4. Fixed Deposit Schemes

The safest avenue to get assured returns for a minimum lock-in period of 5 years is availing a fixed deposit scheme. However, the interest earned in fixed deposit schemes would not have lucrative tax deductions such as ELSS tax benefits or NPS tax exemptions. The interests that you earn through FD scheme are taxable as per the tax bracket.

These are some investment options to avail tax deductions. If Tax saving is your investment objective, why not earn along with savings using these options?!