Want to earn from tax-saving schemes; here's a list where you can invest

If you are planning to claim tax benefits, start investing in the first quarter of a financial year so that you can spread your investments over the years.

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Key Highlights:

Section 80C of IT Act has limit of Rs 1.5 lakh

There are many schemes which give tax benefit

Tax-savings schemes give returns in range of 0% to 23% per year

If given a choice, most of us would agree that we do not want to pay tax on the income we earn. However, things do not happen according to us because income tax we pay is an important tool of revenue for the government.

While our government expects us to pay income tax in right manner, it also provides us various platforms where we can save our tax.

One of the most popular tax-savings option available for Indian citizens is under Section 80C of the Income Tax Act. This scheme has a limit of Rs 1.5 lakh and involves various investments and expenses which can be used to claim deductions.

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However, most of taxpayers delay till the last quarter of the year and end up taking hurried decisions which makes them invest in any scheme to avail tax benefits.

As per ClearTax report, the best time to start planning tax-saving investments would be the beginning of a financial year.

It says, “Instead, if you plan at the start of the year, you can make investments that can also help you fulfill your long-term goals. Tax-saving investments should be used to build wealth as well, not only to just save tax.”

Three pointers, as per ClearTax, are needed to keep in mind while planning tax-saving for the year.

Firstly, check the tax-saving expenses that you’re already making that you can claim. This includes expenses like insurance premium, children’s tuition fees, etc.

Secondly, deduct this amount from Rs 1.5 lakh to figure out how much to invest. The entire amount doesn’t need to be invested if expenses are covering it. Lastly, choose tax-saving investments scheme on the basis of your goals and profile.

Nasser Salim, Managing Partner at Flexi Capital, says, "Make investment in tax savings funds which has higher returns with less lock-in period and has tax-free gain within less time frame."

Below are mentioned best tax-saving investment options in India available at the moment.

Life Insurance:

Although, life insurance is not a pure form of tax saving investment, yet it comes under the list, because under section 80C of IT Act, the premium you pay under this plan is deductible from your total income – which means your taxable fraction can be lowered.

The upper limit for this deduction is up to Rs 1 lakh. Also, premiums paid for the unit linked life insurance plans (ULIPs) are exempted from taxes under section 80C. Apart from ULIPs, other life insurance plans are endowment plans, term plans and money back plans.

However, interest earned from LIC tax savings plan are quite low ranging between 0% and 6% compared to other platforms which also give you tax benefits. The lock in period of this scheme is at maximum five years.

Equity Linked Saving Scheme (ELSS) Mutual Funds:

This scheme is considered to be one of the most sought after tax saving investments options. As per PolicyBazaar, being market linked product they are high risk products but also offer the potential of high returns.

It also boasts the shortest lock in period of three years among its class of investment along with higher returns.

Salim believes the compounding annual growth return (CAGR) under ELSS is between 20% and 22%. While many reports say that ELSS category has given an average return of 43.48% over the past one-year and 22.99% over three years.

Also, one more perk that ELSS offers is that investment under this scheme can also be made through a Systematic Investment Plan (SIP) where you can spend a small fraction of amount (example Rs 1,000) every month than paying a heavy sum altogether. This makes ELSS overall easy and affordable.

Public Provident Fund (PPF):

Compared to other tax-savings scheme PPF has the highest lock in period of 15 years which are issued by the Central government. Contribution made towards this scheme is tax deductible under section 80C.

Upper limit on this contribution is around Rs 70,000. Moreover, the interest earned and received on the maturity is completely tax free. Taxpayers can earn more than 8.50% rate of return from PPF.

National Pension Scheme:

NPS is a pension scheme provided by the Central government. Under this scheme, government employees are mandatorily covered, but it is also open to all Indian citizens on a voluntary basis.

Under section 80C, investments in the NPS of up to Rs 1.5 lakh are eligible for tax benefits. However, deductions under this section should not exceed 10% of your salary.

It further involves low cost investment as much as Rs 500 can be invested. Returns from this scheme range from 4% to 10%. As per ClearTax, your claims come under Section 80CCD(1B) of up to Rs 50,000 in a financial year through NPS.

National Savings certificate (NSC):

NSC is another investment scheme floated by the government. It is a savings bond that allows subscribers to save income tax.

Currently, there are no maximum limit on the purchase of NSCs, but investments of up to Rs 1.5 lakh in the scheme can earn a tax break under section 80C.

They have a fixed interest which is currently at the rate of 8.1% per annum. This interest can be added back to the investment and compounded annually.

Apart from the above mentioned schemes, there are various other tax saving investments plans in the market. They are- Fixed Deposit Schemes, Senior Citizen Savings Scheme (SCSS), Rajiv Gandhi Equity Saving Scheme (RGESS), Voluntary Provident Fund (VPF) and also health insurance.