Tax Saving Investments

Best Tax Saving Investments in India in 2024

The following table of the tax saving investments under the Income Tax Act, 1961 will help you to choose the best investment plan as per your risk appetite and preferences:

Disclaimer: †† Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is done in alphabetical order (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in

1. Unit Linked Insurance Plan (ULIP)

   ULIPs, or Unit Linked Insurance Plans, is a popular tax-saving investment option that combine the elements of life insurance and the best investment options, providing you with an opportunity to grow your wealth while ensuring financial protection.

   Tax Benefits Under ULIP Plans:

   Section 80C:

   • Deductions of up to ₹1.5 lakhs p.a. from income on premiums under Section 80C of the IT Act, 1961.

   • This tax saving option offers you with tax-benefits while filing your Income Tax Returns (ITR).

   Tax-Free Death Benefit Under Section 10 (10D):

   • Death benefit received is tax-free.

   • If you surrender your ULIP before 5 years, the death benefit will be subject to tax.

   Tax-Free Maturity Benefit Under Section 10 (10D): 

   • Tax-free maturity benefit if total premiums don't exceed ₹2.5 lakhs.

   • Surrendering before 5 years makes maturity returns taxable.

   Read More

2. Pension Plans

   Pension plans with insurance provide a dual advantage of a secured retirement income and life insurance cover. As one of the preferred tax-saving investments, they can help secure your future and provide peace of mind.

   Tax Benefits Under Pension Plans:

   Premium Deductions Under Section 80C

   • Premiums paid qualify for a deduction of up to ₹1.5 lakhs per year under Section 80C.

   • Helps lower your taxable income and save on taxes.

   Tax Benefits on Pension Benefits:

   • The pension amount is tax-free for total premiums paid of up to ₹2.5 lakhs under Section 10(10D).

   • The pension fund is taxable if you surrender your policy before a 5-year period.

   Death Benefit Tax-Free Under Section 10 (10D)

   • Death benefit received by the nominee is exempt from tax.

   • Ensure compliance with policy rules to maintain tax benefits.

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3. Child Plans

   Child education plans with insurance are financial solutions that combine investment and life coverage to secure your child's future education needs. They are among the preferred tax-saving investments.

   Tax Benefits Under Child Plans:

   Section 80C:

   • Premiums paid are eligible for deductions up to ₹1.5 lakhs per annum under Section 80C of the IT Act, 1961.

   • Helps reduce taxable income, making it an attractive tax-saving investment option for your child.

   Tax-Free Death Benefit Under Section 10(10D):

   • Death benefits received by the nominee are tax-free under this tax saving option.

   • Tax liability may apply if the policy is surrendered before the lock-in period.

   Tax-Free Maturity Benefit Under Section 10(10D):

   • Maturity benefits are tax-free if annual premiums do not exceed ₹2.5 lakhs.

   • If surrendered before the mandatory lock-in period, maturity proceeds become taxable.

   Read More

4. Sukanya Samriddhi Yojana (SSY)

   The Sukanya Samriddhi Yojana (SSY) is a savings scheme launched by the Government of India as a small deposit scheme as part of the 'Beti Bachao Beti Padhao' campaign. This tax saving investment option is a welfare scheme for girl child and encourages parents to save for their daughter's future expenses like education and marriage. However, a significant percentage of parents also consider this as one of the tax-saving investments in their portfolio.

   Tax Benefits Under Sukanya Samriddhi Yojana:

   Tax Deductions Under Section 80C:

   • Deduction of up to ₹1.5 lakhs yearly on investing in SSY tax saving options.

   • The tax benefit under Section 80C of the Income Tax Act, 1961.

   Exemption on Interest and Maturity Income: 

   • Interest earned and the maturity amount are completely tax-free.

   • Withdrawals made after maturity are exempt from taxation, making SSY among fully tax free investments.

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5. Public Provident Fund (PPF)

   The Public Provident Fund (PPF) is a long-term tax saving scheme offered by the Government of India. It is a tax- saving option for salaried individuals that comes with a 15-year lock-in period. PPF subscribers can invest up to ₹1.5 lakhs in a financial year.

   Tax Benefits under the Public Provident Fund:

   EEE Category Tax Exemptions:

   • Public Provident Fund comes under the Exempt-Exempt-Exempt (EEE) category.

   • The investment, interest earned, and maturity amount from this tax saving option is exempt from tax.

   Section 80C Deductions: 

   • Entire amount invested in PPF is eligible for a deduction under Section 80C.

   • Maximum deduction allowed is ₹1.5 lakhs per financial year.

   Exemption on Earned Interest: 

   • The interest earned on PPF income tax saving option is also exempt from tax.

   • The interest is compounded annually and credited to the PPF account at the end of each financial year.

   Tax Exemption on Maturity Proceeds: 

   • Maturity proceeds of PPF, including principal and interest, are fully exempt from income tax.

   • No tax on withdrawals after the 15-year lock-in period.

   Exemption from Wealth Tax: 

   • Balance in your PPF account is not considered for wealth tax calculation.

   • No liability for wealth tax on these tax free investments.

   Read More

6. Employee Provident Fund (EPF)

   The Employee Provident Fund (EPF) is a government-backed savings scheme in India that aims to provide retirement benefits to employees. The EPF is one of the best tax-saving investments that offers several benefits to both employees and employers.

   Tax Benefits Under Employee Provident Fund:

   Tax Deduction on Employee Contributions: 

   • Employee contributions are eligible for tax benefit under Section 80C of Income Tax Act, 1961.

   • Maximum deduction up to ₹1.5 lakhs per year.

   Exempt, Exempt, Exempt (EEE) Category:

   • Interest earned on EPF contributions is tax-free.

   • No tax on interest earned from this tax saving option.

   Tax-free Withdrawal:

   • Withdrawal amount levies no tax after completing 5 years in this tax free investments.

   • Withdrawal before 5 years is subject to taxation.

   Tax Benefits on Employer Contribution: 

   • Employers are required to contribute to the employee’s EPF account. 

   • Employer's contribution in this tax saving investment is not taxable for the employee. 

   Read More
   

7. Senior Citizen Savings Scheme (SCSS)

   The Senior Citizen Savings Scheme is a savings investment option launched by the Government of India. It offers senior citizens a safe and profitable investment option with attractive interest rates. The below-mentioned tax benefits of SCSS are only available to senior citizens (60 years old and above).

   Tax Benefits Under Senior Citizen Savings Scheme:

   Tax Deduction Under Section 80C: 

   • Principal deposits of the SCSS tax saving scheme are eligible for up to ₹1.5 lakhs annual deduction.

   • Benefit available with tax saving option under Section 80C.

   Exemption from TDS: 

   • No TDS is deducted if SCSS interest is ₹50,000 or less.

   • TDS is deducted if interest exceeds ₹50,000.

   No Tax on Maturity Amount: 

   • The maturity amount from the Senior Citizen Saving Scheme is tax-free.

   • This means that the principal and interest earned are not taxed upon maturity.

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8. National Pension Scheme (NPS)

   The National Pension System (NPS) is a government-sponsored pension scheme that offers tax benefits of up to ₹2 lakhs to encourage you to plan and save for your retirement. NPS is among the major tax- saving investments in India.

   Tax Benefits Under National Pension Scheme:

   Tax Deduction on Contributions Under Section 80C:

   • NPS contributions are eligible for deductions of up to 10% of salary under Section 80 CCD(1).

   • Deduction benefits within the overall ceiling of ₹1.5 lakhs under Section 80CCE.

   Additional Tax Deduction on Voluntary Contributions Under Section 80 CCD(1B):

   • Up to ₹50,000 deduction on voluntary NPS contributions under Section 80 CCD(1B).

   • This benefit is in addition to the above deductions under Section 80CCD(1)

   Tax Exemption on Employer's Contribution Under Section 80 CCD(2):

   • Employer's NPS contribution is tax-exempted under Section 80 CCD(2).

   • Deduction on contributions by the employer up to a certain limit under the Income Tax Act, 1961.

   Tax Exemption on Partial Withdrawal: 

   • Up to 25% corpus withdrawal is allowed after 60 months.

   • This amount of NPS tax-saving investment is exempt from tax.

   Tax Exemption on Lump Sum Withdrawal: 

   • Up to 60% lump sum withdrawal on retirement is tax-exempted.

   • Remaining 40% is used to purchase annuities for regular income.

   NOTE:

   • The tax benefits are only available for contributions to the NPS Tier I account.

   • Contributions made to NPS Tier II accounts are not eligible for tax benefits.

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9. National Savings Certificate (NSC)

   The National Savings Certificate is a safe investment option that offers tax benefits under Section 80C. It is a good option for investors who are looking for a long-term investment with guaranteed returns.

   Tax Benefits Under National Savings Certificate:

   Tax Deduction Under Section 80C:

   • Investment in NSC qualifies for a deduction under Section 80C.

   • The maximum limit for this Section 80C investment option is ₹1.5 lakhs in a financial year.

   Tax Saving on Accrued Interest:

   • Interest earned on NSC investment is tax-free for the first 4 years.

   • The interest is considered reinvested and qualifies for Section 80C deduction.

   • After 4 years, the total earned interest is taxable according to your income tax slab.

   Tax Benefits for TDS on Interest Earned:

   • Interest from the NSC scheme is taxable, but no TDS is deducted at source.

   • You are responsible for declaring interest earned and paying taxes while filing your Income Tax Return (ITR).

   Read More

10. Tax-Saving Fixed Deposit Scheme

    Tax-Saver Fixed Deposits (FDs) are a type offixed deposit scheme offered by banks in India that offers tax benefits under the Income Tax Act. These income tax saving options have a lock-in period of 5 years, during which the deposited amount cannot be withdrawn.

    Tax Benefits Under Tax-Saver Fixed Deposit (5-Year FDs):

    Tax Deduction Under Section 80C:

    • Invested amount in Tax-Saver FDs qualifies for a tax deduction up to ₹1.5 lakhs annually.

    • Tax benefits available under Section 80C of Income Tax Act in the year of investment in these tax saving options.

    Exempted Interest:

    • The interest earned on Tax-Saver FDs is taxable based on your income tax slab rates.

    • The interest income is exempted from Tax Deduction at Source (TDS) up to ₹40,000 per financial year (₹50,000 for resident senior citizens).

    Taxation on Maturity:

    • Maturity proceeds, including principal and interest, are taxable in the year of maturity.

    • Interest income is added to your total income and taxed at applicable income tax rates.

    • No TDS is deducted from the maturity amount under these tax-saving schemes.

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11. Equity-Linked Savings Scheme (ELSS) Mutual Fund

    ELSS Mutual Funds are tax-saving mutual funds that invest in equity and equity-linked securities. They come with a 3-year lock-in period to help your tax-saving investments grow. It provides you with the potential for capital appreciation along with tax benefits. Some of the popular tax saving mutual funds are - DSP ELSS Tax Saver Fund, ICICI Prudential ELSS Tax Saver Fund, Mahindra Manulife ELSS Fund, and Bandhan ELSS Tax saver Fund.

    Tax Benefits Under Equity Linked Savings Scheme:

    Tax Deduction Benefits under Section 80C:

    • Investments in ELSS are eligible for tax deductions up to ₹1.5 lakhs per annum under Section 80C of the IT Act, 1961.

    • Reduces taxable income, making ELSS one of the most efficient tax-saving mutual funds.

    Lock-in Period:

    • ELSS funds have a mandatory 3-year lock-in period.

    • During this period, the invested amount cannot be redeemed.

    • Returns are not subject to lock-in.

    Long-term Capital Gains Tax:

    • Gains from ELSS after the 3-year lock-in are treated as LTCG.

    • LTCG on ELSS is taxed at 12.5% if the annual gains are above ₹1.25 lakhs.

    Long-term capital gain (LTCG)	Tax Rate
    Up to Rs 1.25 lakhs	Nil
    Above Rs 1.25 lakh	12.5%

    Tax-free Dividends:

    • Dividends received from ELSS mutual funds are taxed according to your applicable income tax slab.

    • Dividend Distribution Tax (DDT) is not applicable on tax saving mutual funds since abolition in Finance Act 2020.

    • Fund houses deduct 10% TDS on dividends over ₹5,000.

    Systematic Investment Plan (SIP):

    • ELSS allows investing through SIPs.

    • Each SIP is considered a fresh investment with 3-year lock-in.

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12. Education Loan

    Education loans are essential tax-saving investment options that help students finance their higher education in India and abroad. These loans provide financial assistance, covering tuition fees and other educational expenses, while offering tax benefits.

    Tax Benefits Under Education Loans

    Section 80E:

    • Interest paid on education loans qualifies for tax deduction under Section 80E of the Income Tax Act, 1961.

    • Deduction available for up to 8 consecutive years or until loan interest repayment is complete, whichever comes first.

    • No upper limit on the deduction amount, making it highly beneficial for borrowers.

    Conditions for Tax Benefit:

    • Loan must be taken from a recognized financial institution or charitable organization.

    • Applicable only for courses pursued after the Senior Secondary Examination.

    • The loan can be for higher studies in India or abroad.

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13. Home Loan

    Home loans are a crucial financial tool that helps individuals purchase or construct a home. They are also a beneficial tax-saving investment, offering various deductions to reduce your overall tax liability.

    Tax Benefits Under Home Loans

    Section 80C:

    • Principal repayment qualifies for tax deduction under Section 80C of the Income Tax Act, 1961.

    • Deduction limit: Up to ₹1.5 lakhs per financial year.

    • Applies to loans for purchase or construction (construction must be completed within 5 years).

    Section 24(b):

    • Interest paid on a home loan is eligible for a deduction of up to ₹2 lakhs per year.

    • If the property is rented, the entire interest paid is deductible without limit.

    • Construction or purchase must be completed within 5 years from the end of the financial year when the loan was taken.

    Section 80EE:

    • Additional deduction of up to ₹50,000 on interest paid, for first-time homebuyers.

    • Available if the loan amount is ₹35 lakhs or less and the property value is up to ₹50 lakhs.

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14. Life Insurance Policy

    Life insurance policies are valuable financial tools that can provide peace of mind for your loved ones and add to your tax- saving investments. These financial instruments do not just help you insure your life but also enable you to build wealth in the long term.

    Tax Benefits From Life Insurance Policy:

    Tax Deduction Under Section 80C:

    • Deduction of up to ₹1.5 lakhs per year on premiums paid towards life insurance policies for self, spouse, and children.

    • Applicable to both individuals and Hindu Undivided Family (HUF) taxpayers.

    • Premium should not exceed 10% of the sum assured for policies issued on or after April 1, 2012.

    Maturity Proceeds:

    • Maturity proceeds from ULIP and Capital Guarantee life insurance policies issued before April 1, 2023, are tax-free under Section 10(10D).
    • Annual premium should be below ₹2.5 lakhs for ULIP Plans and ₹5 lakhs for Traditional Guaranteed Return Plans to get tax benefits under Section 10(10D).
    • Maturity proceeds of policies issued after April 1, 2023, are taxable if annual premium exceeds ₹5 lakhs.
    • The taxable amount is the difference between maturity proceeds and total premiums paid.

    Death Benefit: 

    • Tax-free under Section 10(10D) for nominee or beneficiary.
    • No limitations on tax exemption for death benefit, regardless of premium amount.
    • Exception: Taxability depends on the relationship of benefit received by someone other than the nominee.

    Tax Deduction for Policies on the Life of a  Differently Abled Dependent: 

    • Additional tax deduction under Section 80DD for premiums paid on policies for differently abled dependents.

    • Deduction up to ₹75,000 for 40% or more disability, and ₹1.25 lakhs for 80% or more disability.

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15. Term Insurance Plan

    Term insurance is a life insurance policy that provides coverage for a specified period, known as the term. If the insured person passes away during this period, this tax saving option pays out a death benefit to the beneficiaries. 

    Tax Benefits From Term Insurance Policy:

    Premium Deduction under Section 80C:

    • Deduction up to ₹1.5 lakhs on premiums paid for tax-saving investments.

    • Applicable for yourself, spouse, and dependent children.

    Tax-Free Death Benefit under Section 10(10D):

    • Nominees receive money tax-free upon the policyholder's death.

    • Applicable even if the amount exceeds ₹1 crore.

    Benefit on Riders:

    • Premiums for critical illness riders on tax-saving investments eligible for deductions under Section 80D (up to specific limits).

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16. Health Insurance Plan

    Health insurance is a financial plan that helps cover medical expenses. These tax saving investments typically include services like doctor visits, hospital stays, and prescription drugs. You pay monthly premiums to maintain coverage, and in return, the insurance company helps bear the cost of your healthcare.

    Tax Benefits From Health Insurance Policy:

    Tax Deduction under Section 80D:

    • Reduces taxable income by claiming deductions on premiums paid.

    • Deduction limits:

      • ₹25,000 for self, spouse, and dependent children (under 60).

      • ₹50,000 for self/spouse (60+) or parents (any age).

    • Only premiums paid through non-cash modes are eligible.

    Preventive Health Check-up Expenses:

    • Additional ₹5,000 deduction for preventive health check-ups for self and family.

    • This deduction is within the overall Section 80D limit.

    Benefits on Riders:

    • Premiums for critical illness riders may qualify for further deductions under Section 80D (subject to limits).

    • Some employers offer tax-exempt health insurance coverage as part of benefits.

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17. Charity/ Donations

    Donating to charity is a meaningful way to contribute to society and also serves as a tax-saving investment. Contributions to eligible organizations can provide you with significant tax benefits under the Income Tax Act, 1961.

    Tax Benefits Under Charity/Donations

    Section 80G:

    • Donations to specified charitable institutions and relief funds qualify for tax deductions under Section 80G.

    • Deduction rates are 50% or 100% of the donated amount, depending on the organization.

    • No upper limit on donations, but for some, deduction is capped at 10% of the taxpayer’s adjusted gross total income.

    Section 80GGA:

    • Donations made for scientific research or rural development projects are fully deductible.

    • Available to all taxpayers except those with business income.

    Section 80GGC:

    • Contributions to political parties or electoral trusts qualify for tax deductions.

    • Deduction of up to 100% of the donation amount is allowed (non-cash contributions are not eligible).

    Read More

Tax Saving Options under Old and New Tax Regime for FY 2024-25

The following table outlines key tax-saving instruments, their corresponding sections under the Income Tax Act, and their availability for tax benefits in old and new tax regime to be chosen to file your Income Tax reports:

Best Way to Plan Your Investments to Save Income Tax for FY 2024-25

By following the below-mentioned structured approach, you can strategically save taxes while aligning with your financial goals for FY 2024-25:

Key Tips to Save Income Tax in FY 2024-25

You can save income tax in India through the following ways: 

• Maximize Deductions under the Old Tax Regime: If you can claim multiple deductions, the old regime might be beneficial. Utilize tax free investments like PPF, ELSS, NPS, tax-saving FDs, etc., to claim deductions under Section 80C (up to ₹1.5 lakh).

• Early Planning and Investment: Start planning your investments early in the financial year to maximize benefits.

• Use Income Tax Calculator: Compare the old and new tax regimes to choose the optimal one. The tax calculator will help to analyze deductions and exemptions specific to your situation.

• Claim Deductions for Medical Insurance Premiums: Deduct premiums paid for health insurance for yourself, spouse, dependent children, and parents (up to specified limits).

• Claim Deductions for Home Loan Interest (Section 24): Claim deduction for interest paid on your home loan (up to specified limits). First-time homebuyers get an additional deduction under Section 80EE.

• Children's Tuition Fees: Deduct tuition fees paid for up to two children's full-time education (school, college, university). Fees paid for vocational courses also qualify.

• Optimize Rent & Housing: Claim HRA exemption for rented accommodation and avail of interest deduction on your home loan EMI.

• Donations & Charity: Get tax benefits by donating to eligible charitable institutions or political parties.

• Tax-free Allowances and Reimbursements: Utilize meal coupons, phone bill reimbursements, and travel allowances, and optimize tax exemptions on Leave Travel Allowance (LTA).

• Review Your Tax Free Investments: Regularly review your investments and adjust them according to changes in tax laws or personal financial goals.

• Maintain Financial Records: Keep documents for all investments and deductions. This helps in a hassle-free filing process and avoiding penalties.

Conclusion

Tax-saving investments in India play a crucial role in optimizing your financial portfolio while simultaneously reducing the tax burden. Options such as ULIP, FD, PPF, ELSS, and NSC offer effective ways to save on taxes and achieve long-term financial goals. However, it is essential to assess your financial needs, risk tolerance, and investment horizons when selecting the most suitable tax- saving instruments. Ultimately, making informed choices can lead to a more secure financial future while minimizing tax liabilities.