Though not everyone understands how, everyone wants to save taxes. The good news is that the Income Tax Act offers several choices where you might invest your money and lower your tax load. This guide will assist you in selecting the appropriate investment to save income tax depending on your objectives.
Why Invest to Save Taxes?
Investments meant for tax savings serve two purposes:
- Lower your tax burden
- Use returns or interest to grow your money.
Legal savings of up to ₹1.5 lakh or more annually are possible by carefully timing your investments.
Top Investment to Save Income Tax (Based on Section 80C)
Most often used section providing tax deductions up to ₹1.5 lakh annually is Section 80C.
- Public Provident Fund (PPF)
- Governmentally sponsored, quite safe
- 15-year locks in
- Interest is not taxed
- Perfect for long-term financial planning
- Governmentally sponsored, quite safe
- Employee Provident Fund (EPF)
- Salaried employees’ automatic deduction
- Employer additionally helps
- If taken after five years, tax-free returns
- Salaried employees’ automatic deduction
- ELSS, Equity Linked Saving Scheme
- Mutual fund meant for tax savings
- 3-year lock-in (shortest in 80C)
- High return possible
- Best for those who can manage some risk
- Mutual fund meant for tax savings
- Premium paid for self, spouse, or child
- Policy has to be active for minimum two years
- Bonus or maturity might also be tax-free (subject matters depend)
- Policy has to be active for minimum two years
- Five-year fixed deposit, or bank FD
- Provided by banks
- Safe but modest returns
- Stuck in for five years
- Interest is not taxable
- Provided by banks
- NSC, or national savings certificate, presented at post offices
- Lock-in five years
- Though re-invested (also qualified for deduction), interest is taxable
- Lock-in five years
- Yojana Sukanya Samriddhi
- For a daughter under ten years old
- Returns free of taxes and maturity
- Highest interest in small saving plans
- For a daughter under ten years old
Other Deductions Other Than Eighty-C
Apart from 80C, you could also get tax advantages through:
- Section 80D – Health insurance premium
- Section 24(b) – Up to ₹2 lakh home loan interest
- Section 80E—Interest on Education Loans
- Section 80CCD(1B) – ₹50,000 additional for the National Pension Scheme, NPS
Planning your investment to save income tax now has more options thanks to these.
Guideline for Selecting the Correct Investment
- Examine liquidity and lock-in periods
- Think on your risk profile—safe against market-linked?
- Match it to your financial objectives—child’s education, retirement, etc.?
- Invest not only for taxes; consider long terms.
Thoughts on Last Notes
It’s important to build wealth in a wise way when choosing an investment to save income tax rather than just paying less tax. Plan your investments early in the financial year regardless of your preferred safe choices—PPF or high-growth ones like ELSS. In this sense, you steer clear of last-minute frenzy and choose actions that genuinely forward your future.