Every individual wants that a large part of his hard-earned money does not go in taxes, and for this, proper tax planning is extremely important. In India, there are many investment options available under Section 80C of the Income Tax Act, by investing in which you can get a tax exemption of up to Rs 1.5 lakh annually. From ELSS to PPF, these investments not only help in saving tax but also give good returns in the long run, thereby strengthening your financial position.

Here is a list of 7 best tax-saving investment options in India, by investing in which you can save tax and lay the foundation for a secure future. But one must remember that these investment plans get deduction benefits only under the Old Tax Regime.

Also read: Best short-term investment options for higher returns

What is the right way to save tax through investment?

There are a few things to keep in mind while choosing investments for tax saving:

Risk tolerance: Options like ELSS and NPS are better for those who can take a little risk for higher returns.

Investment objective: If you want safe investments without risk, PPF and NSC are better options.

Lock-in period: Some schemes have a long withdrawal period, such as PPF (15 years) and NPS (till retirement).

7 Best Tax-Saving Investment Options in India

  1. Equity Linked Savings Scheme (ELSS)

Returns: Above 15% (in the long term)

Lock-in period: 3 years

ELSS Mutual Funds are a popular saving and investment instrument that serves two purposes – wealth building and tax savings. Under Section 80C, an investment of Rs 1.5 lakh in this instrument is tax-free.

Benefits: Being a market-based investment, it carries risk, but has the potential to give higher returns than traditional fixed income instruments. For those who are willing to take risks, this is a good option.

  1. Public Provident Fund (PPF)

Returns: 7.1% per annum

Lock-in period: 15 years

Benefits: Backed by the government, PPF is a completely safe investment and its interest and maturity amount are tax-free, making it an ideal option for conservative investors. PPF investment enjoys a deduction benefit of Rs 1.5 lakh under the Old Tax Regime.

  1. National Pension System (NPS)

Returns: 9% – 12%

Lock-in period: Till retirement

Benefits: NPS scheme offers additional tax exemption of Rs 50,000 under section 80CCD(1B) over and above the Rs 1.5 lakh under 80C and is an excellent retirement plan.

  1. Sukanya Samriddhi Yojana (SSY)

Returns: 7.6% per annum

Lock-in period: 21 years or till daughter’s marriage

Benefits: Best scheme for education and marriage of daughters. Investment in it gives tax exemption under section 80C and returns are also completely tax-free.

  1. National Savings Certificate (NSC)

Returns: 6.8% per annum

Lock-in period: 5 years

Benefits: It is a safe option for small and middle class investors. Investments made in this are eligible for tax exemption under section 80C.

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  1. Senior Citizen Savings Scheme (SCSS)

Returns: 7.4% per annum

Lock-in period: 5 years (extendable up to 3 years)

Benefits: Ideal scheme for senior citizens. It offers higher interest than fixed deposits, although interest above Rs 50,000 is taxable.

  1. 5-year tax-saving bank fixed deposit (FD)

Returns: 5.5% – 7.75%

Lock-in period: 5 years

Benefits: Suitable for conservative investors due to fixed returns and low risk. However, the interest received on it is taxable.

Summing up

Choosing the right tax-saving investment is the key to securing your financial future. If you are willing to take risks, options like ELSS and NPS may be better for you. On the other hand, PPF, NSC, and SCSS are great for safe and fixed returns. If you want your savings to be tax-free and secure for the future, choose the right tax-saving investment option.