The number of Indians filing their income tax returns has been growing steadily in recent years. In fact, the number of taxpayers increased from just 6.84 crore in 2017-18 to 8.45 crore in 2018-19, according to information provided by the Income Tax Department’s e-filing website.
This huge jump also means a large number of first-time taxpayers. And when it comes to first-time taxpayers in our country, there is a lack of awareness regarding tax saving investments. If you are also one of them, here are some of the top investment choices for saving tax.
Among mutual funds, the best option for tax saving are the equity linked saving schemes (EPSS). These are a type of diversified fund that invests up to 65% of its capital in equities. These schemes generally have a lock-in period of 3 years. ELSS have a great track record in terms of returns, providing interest of around 15%-18%. But, it must be remembered that their performance is based on market conditions, so the returns are not guaranteed.
In these funds, the investment can provide tax benefits of up to ₹1.5 lakhs. It must also be remembered that the dividends from these schemes are also taxed at 10%, as of April 2018. You can choose to invest via SIPs. The best SIP plans allow you to invest via regular monthly payments. You can start investing with as little as ₹500. You can also opt for liquid funds for tax saving.
Unit Linked Insurance Plan (ULIP)
You are never too young to invest in a protection plan and ULIPs offer a great mix of protection and savings. Apart from life insurance, they also give you the chance to invest in various market linked assets. These investments tend to be more fruitful when made for the long term.
They normally have a lock-in period of 5 years and can be renewed for up to 20 years. Another advantage is that the premium paid towards these plans provides you tax benefits under Section 80C of the IT Act. On top of that, the returns are also tax exempt under Section 10(10D). Therefore, ULIPs can be a great option for those looking for a retirement plan.
Mutual funds are not the only instruments that offer wealth creation and tax saving benefits. Fixed deposits are also great for this purpose. Your investments in fixed deposits are eligible for tax saving of up to ₹1.5 lakhs under Section 80C. Even the income generated from these instruments is exempt from tax, if it is less than ₹40,000 in a year. In case of senior citizens, this limit is ₹50,000.
Public Provident Fund
If you are looking to build your retirement portfolio, then public provident funds can be a great choice for you. These are government backed schemes that offer tax savings under Section 80C of the Income Tax Act. Even the interest earned on these funds is completely free of tax. You can make investments with as little as ₹500 and as much as ₹1.5 lakhs a year.
There are plenty of great tax-saving investments, in addition to mutual funds. Apart from these, investing in national pension schemes and senior citizens savings accounts can be great option as well.