Once you start earning, part of your financial planning should include planning your taxes. Proper tax management can help you save more money and help you reach your financial goals faster.
In 2023, you might already be looking for tax saving options for the new year. Here are some of the best ways to save on taxes.
i. Tax Saving Fixed Deposits
Fixed deposits offer tax saving opportunities on their returns. Under sector 80C of the Indian Income Tax Act of 1961, you can claim tax deductions of up to INR 1.5 lakhs if you invest in a tax saving fixed deposit with a 5-year lock-in period.
These FD accounts may have some slight differences when it comes to their terms of services, but they usually have the same kind of returns. This makes tax saving FDs some of the best tax saving investment options in India. tax saving FDs are offered by a number of banks and the benefits vary a lot from bank to bank.
ii. Employees’ Provident Fund (EPF)
The Employees’ Provident Fund is a scheme that the government of India introduced as a means to save taxes for salaried people. It is a retirement benefit scheme in which 12% of an employee’s salary and dearness allowance is deducted by the employer on a monthly basis and is added to an EPF account.
Furthermore, the employer also contributes to this account. The money is then invested by the government and is returned along with any benefits to the employee upon retirement. The EFP is greatly beneficial for tax savings, since the principal amount, the interest earned, and the returns are all tax-free.
iii. Public Provident Scheme (PPF)
The public provident fund, or PPF, is a government-sponsored popular tax saving investment option for Indians. PPFs are high-interest low-risk schemes that can give you very good returns. However, there is a lock-in period of 15 years, which means that it is a long-term investment scheme.
The scheme also allows for a maximum yearly principal deposit of INR 1.5 lakhs, which can be claimed for a tax waiver under section 80C of the Indian Income Tax Act. Furthermore, the interest you earn at the end of the 15-year period is also tax-free. This makes PPF one of the best investment options in India for tax savings, especially for young investors. You are, however, limited to only one PPF account.
iv. National Savings Certificate (NSC)
Another government initiative for tax savings is the NSC. Unlike PPFs though, NSCs are a type of tax saving bond and have a lock-in period of only 5 years. NSCs also do not have a maximum upper limit, although tax exemption can only be availed up to INR 1.5 lakhs per year.
Like PPFs, the interest generated is tax-free. NSCs are great for short-term investments and are preferable for those who wish to invest smaller amounts. There’s also no limit to how many NSCs you can have.
v. Tax Saving Mutual Funds
Certain mutual fund investments can give you tax saving benefits in India. Equity-linked savings scheme (ELSS) mutual funds, also known as ELSS funds, are for those who have medium to high-risk tolerance. These schemes offer very high returns but can have risks attached since they are based on investment in the stock market and other similar assets.
Just like with some of the previously mentioned schemes, ELSS funds can provide you tax exemptions up to INR 1.5 lakhs, but they also have tax-free returns. These are usually great investment options for tax savings for those who already have other savings options enabled, and can help diversify your portfolio a bit. Some of the best ELSS funds for 2023 are Axis Long Term Equity Fund, Mirae Asset Tax Saver Fund, and Bank of India Tax Advantage Scheme.
vi. Unit-Linked Insurance Plans (ULIP)
ULIPs are long-term insurance plans which double as an investment scheme. These are suited for long-term financial planning in which the money invested in divided between an investment scheme and a life insurance plan. ULIPs also give tax benefits as stated under section 80C of the Income Tax Act of India, and can provide tax benefits up to INR 1.5 lakhs per year. Some of the best ULIPs in India for 2023 are Tata AIA’s Super Select Equity Fund, Bajaj Allianz’s Pure Stock Fund, and SBI Life’s Equity Fund.
Concluding Thoughts
For an Indian, there are quite a few tax saving investment options available as well as plenty of savings schemes that you can take advantage of for saving on taxes. Taking your time to find out which ones are best for your money-saving goals, and learning about them can be hugely beneficial.
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