Top 10 tax-saving investment options under section 80C
Irrespective of how simplified our tax regime has become over the years, many individual taxpayers still get butterflies while handling income tax matters. Are you one of them? If yes, please don’t stress out. Even the most ingenious people such as Albert Einstein have found it difficult to manage taxes.
The best way to deal with taxes more effectively is to plan for them well in advance.
Thankfully, you can reduce your tax burden by simply investing in any of the permissible tax-saving investment options
The top 10 tax-saving options under section 80C are:
- Equity Linked Savings Scheme (ELSS)
- Insurance policies
- Unit-Linked Insurance Plans (ULIPs)
- Public Provident Fund (PPF)
- Employee Provident Fund (EPF)
- National Pension System (NPS)
- Senior Citizen Savings Scheme
- Sukanya Samriddhi Yojana (SSY)
- National Savings Certificate (NSC)
- Tax-Saving Fixed Deposits
Note: Of these EPF, PFF and SSY fall under E-E-E (Exempt-Exempt-Exempt category), meaning the investment amount qualifies for tax deduction and neither income arising thereof nor maturity value attracts any tax.
How to choose the most attractive tax-saving investment options?
Your choice of tax-saving investment avenue depends primarily on three factors
- Your risk appetite
- Investment objectives
- Liquidity preferences
For instance, if you don’t mind taking high risk for earning higher returns, investment options such as ELSS might suit you the most.
ELSS or tax-saving funds are an “icing on the cake” investment option due to their added features and advantages. Tax-saving schemes are equity oriented funds that hold at least 80% of their assets in equity and equity related instruments all the time.
While taxable, historically they have outperformed other competing investment options on a tax-adjusted basis as well.
For instance, Kotak Tax Saver Fund was launched in November 2005. Over the last 17 years, the fund’s Net Asset Value (NAV) has jumped nearly 8 times, which translates to a return of 12.8% on a compounded annualised basis.
On the other hand, Quant Tax Plan which was launched in March 2000 has clocked 15.4% CAGR returns over the last 22 years. Now even if you factor in for a tax of 10% flat on gains over Rs 1 lakh in a financial year on aggregate, the returns could have been superior.
ELSS can offer you three key advantages:
- Tax deduction upto Rs 1.5 lakh u/s 80C
- Wealth creation opportunity
- One of the lowest lock-ins of 3 years vis-à-vis comparable tax-saving investment options
While you may not be ready to start an SIP (Systematic Investment Plan) in a tax-saving scheme.
Another option to save on tax, ensure the complete safety of your capital along with assured returns are Small Saving Schemes (SSS) such as PPF and NSC.
Interest rates on SSS are subject to change and while in theory they are expected to beat the inflation although marginally, high inflation can take its toll on SSS. Hence, prudent investors follow their personalised asset allocation plan while opting for tax-saving investment options under section 80C.
Where do you invest your hard earned money to avail tax deductions u/s 80C? Do let us know in the comments if you’d like for us to cover any other investment instruments/facets of personal finance. For more information on ELSS/tax-saving mutual funds write to us at email@example.com.
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