Best Tax Saving Investment In India


Best Tax Saving Investment in India



The India infrastructure sector, especially power and roads, have large investment plans. That they will be raising a significant amount  of money during this financial year through taxable bonds. This is because the government is not allowing any new tax-free bond issues in this financial year. High net worth investors (HNIs) and others in the high started purchasing tax-free bonds listed on stock exchanges. The recent jump in prices of these bonds can be attributed mainly to a buying spree from this high income group. If rates continue to fall as expected, the market price of these tax-free bonds will go up further and this generates a good trading opportunity for medium-term investors.

What are Tax-Saving investors options?

1.Public Provident Fund —


This is suitable for those who want tax savings and who want to accumulate funds for retirement purpose thereby earning safe and highest returns. This is one of the best investment plans to save tax.PPF offer several good features and this is one of the best investment options to save tax u/s 80C. Tax free returns at maturity. If offers 8% interest per annum. Govt. of India would keep updating this every year.


2.ELSS Tax Saving Mutual Funds:


Offers highest returns (not fixed and not guaranteed) compared to other tax saving options. Investing in ELSS funds through SIP every month would help you reduce burden of investing a lump sum, take care of market fluctuations and provide higher returns. This is one of the best investment plans with higher returns that can also help you save tax.

3.Tax Saving Bank FD Schemes


This is one of the old and best investment option to save income tax under section 80C of IT act.

Interest rates vary between 5.5% to 7.5% per annum

Interest is taxable





 4. Year Lock-in period


Some of the best tax saving FD schemes offered by banks are : Ratnakar Bank-

7.7%, IDFC Bank – 7.5%, DCB Bank -7.5% and Union Bank of india-6.5%.

Interest rates vary between 5.5% to 7.5% per annum.



5.Senior Citizen Saving Schemes (SCSS)



It provides assured returns for Senior Citizens. Principle amount is safe as they are backed by Government. Interest rates are at 8.5% per annum. Interest is paid at the end of every quarter. This is one of the best investment option to save tax for Senior Citizens as they would get quarterly interest. The maximum investment limit is 15 Lakes. Interest earned is taxable like any other fixed deposit scheme.Return are not guaranteed as investments are made in stocks and RGESS mutual funds.

6.New pension Scheme (NPS)


This is another top investment option to save tax u/s 80C who are looking to save for retirement.NPS returns vary between 4% to 10%. In 2013, some of the funds opted in this scheme has provide 14% returns.

Low cost investment option. The fund management charges are very low at 0.0009% of investment value. One has to do some homework before subscribing to NPS Scheme.


6.National Saving Certificate (NSC)


National Saving Certificate is issued by Post offices and principle along with interest is backed up by the Govt. of India. Hence, these are safe investment options  Interested received is taxable. You need to show this as income while fitting ITR and pay income tax. Individual, joint and minor, supported by Guardian can invest NSC.

7.Unit Linked Investment Plan(ULIP)


After 2010 IRDA guidelines, Insurance companies have reduced ULIP charges.

ULIP’s provide risk coverage. New ULIP’s provide risk coverage. New ULIP policies have low policy / administration charges. No guaranteed returns. It provide returns of 5% to 11% returns depending on the scheme.


8.Insurance Plans :


An important aspect of an individual is to consider adequate insurance plans for earning member. Prefer term insurance plan as it comes with low costs and high risk coverage and not for saving purpose.


 What are Tax-free Income 

Two types of questions are frequently asked by taxpayers, first one is what are the best tax-saving investments and second what are the best tax free investments options in India are ? Both of them sound somehow similar but there is subtle difference between both of them. In this article we are going to see only tax free investment options in India.

Public Provident Fund :

Public Provident Fund (PPF) is a Government backed saving and retirement planning investment scheme. One investment maximum up to Rs.1.50 lakhs and minimum investment is Rs.500 per annum. The whole investment can be claimed as deduction under section 80C. The interested annually and the monthly interest is calculated only on the balance standing on or before 5th of the month. Suppose if you have balance of Rs. 1 Lakh on 1st April and deposited Rs.25,000 on 4th April than for month of April,say on 7th April than you would get interest on Rs1 lakh for the month of April.The deposited Rs.25,000 would fetch interest on the next month May.

Equity Linked Savings Scheme



Equity Linked Saving Scheme is the only tax free investment options which channelize retail saving in equity market by investing in Equity Oriented Mutual Funds. all phases of ELSS funds aka Contribution-Accumulation-Withdrawal phase are tax. The returns generated get accumulated over the lock-in period and since the holding period of funds is of 3 years, at the time of withdrawal capital gains becomes tax free.

Sukanya Samriddhi Account Scheme



The interest rate Sukanya Samriddhi Account is linked to G-Sec and declared every quarter and compounded annually similar to PPF. Currently for the April, 2016 to June 2016, SSA fetches  interest at the rate of 8.60% p.a. Which is due to revise on 15th June for next quarter. Invested amount can be claimed as deduction u/s 80C and the withdrawal/ maturity proceeds is fully tax free in the hands of the girl.

Employees Provident Fund/Voluntary Provident Fund

The contributed amount is deductible u/s 80C and the loans/withdrawals are also tax free subject to minimum serving of 5 years continuously else premature withdrawals are also subject to tax. The maturity proceeds are also tax free which makes EPF an EEE scheme

Life and Health Insurance aka Mediclaim

Life Insurance is a vital part of financial planning. It not only gives your family a projection in an unfortunate event but if you opt for money back plans or endowment policy, you will get maturity proceeds once policy term finishes.

Finance bill 2014 has inserted a new clause that if the premium paid towards policy does not meet the criteria of 10% of sum assured than TDS at 2% will be deducted from the maturity amount including the sum allocated by the way of bonus.

 Tax saving which best suits your needs



Do-it- yourself tax planning can be both rewarding and challenging, because you can choose the tax-saving instrument that best suits your needs. While the ranking is based on a robust methodology, your choice should also take into account your requirements and financial goals.




The bigger problem is that once you sign up for these policies, they become millstones around your neck. We suggest he should turn these plans into paid-up policies after three years. Insurance should not be mixed with investment. For the third consecutive year, traditional life insurance policies remain the worst way to save tax. Still, millions of taxpayers buy these policies every year, lured by the “triple benefits” of life insurance cover, long-term saving and tax benefits.




Pension plans from insurance companies do not enjoy the same tax benefits as the NPS. The additional deduction of Rs 50,000 under Sec 80CCD (1b) is reserved exclusively for the government-promoted pension scheme. But pension fund mangers dismiss the charge that this is an unfair advantage. “The retirement funds from mutual funds are not really pension products. They also force the investor to put a larger portion (66%) of the corpus in an annuity. The prevailing rates are not very attractive. For instance, if a a 60-year-old man invests Rs 10 lakh will give him Rs 7,792 per month life. ELSS funds will be better alternatives to these plans.





The interest earned on the deposits is fully taxable, so the post-tax returns are not very lucrative (see table). Those in the highest 30% tax bracket (Taxable income of over Rs 10 lakh a year)should not invest in these deposits. One ticklish area is the TDS rule. If the interest income exceeds Rs 10,000 in a year, the bank will deduct TDS. Some investors try to avoid the TDS by splitting their investments across 2-3 banks.




The tenure of the scheme is five years, which is extendable by another three years. The interest is paid out in quietly tranches on fixed dates, irrespective of when you invested. As mentioned earlier, This is the best tax-saving instrument for retirees. At 9.3%, it also offers the highest interest rate among all post office schemes.





Accounts can be opened in any post office or designated branches of PSU banks with a minimum investment  of Rs 1,000. The maximum investment in a financial year is Rs 1.5 lakh and deposits can be made for 14 years after opening the account. The account matures when the girl turns 21, though up to 50% of the corpus can be withdrawn after she is 18 or gets married.




ELSS funds are equity schemes and carry the same market risk as any other diversified fund. The previous year was not good for equalities, with the Sensex ending the year with a 5% loss. Even some top-rated ELSS funds lost money in the past year. Investors who opened for the ultra-safe PPF would have made more money(see table).





There are many reasons why Ulips are at second place in our ranking. The new online Ulips are ultra cheap, with some of them costing even less than direct mutual funds. They also offer greater flexibility.




Though the ultra-safe PPF has slipped to fourth place in the ranking this year, it still remains a good option for the conservative investor who doesn’t mind earning less as long as the returns are assured.



Right time to buy Tax-free bonds 

The Indian infrastructure sector, especially power and roads, have large investment plans. They will be raising a significant amount of money during this financial year through taxable bonds. This is because the government is not allowing any new tax-free bond issues in this financial year. “Since current yield is reasonable, it makes sense to buy tax-free bonds, especially 10-year bonds, which have completed 3-4 years (with a residual holding period of 6-7 years),” says Gaurav Mashruwala, Sebi-registred investment adviser. The yield on several listed taxfree bonds are around 7% now and they may come down further. As for taxation, these bonds have a slight advantage over debt mutual funds. While you need to hold debt funds for three years to quality for long-term capital gains (LTCG) benefit, you only have to hold tax-free bonds for one year .LTCG will be taxed at 10% without indexation. Being interest bearing securities, indexation benefit won’t be available.

These top 10 tax saving schemes would help you to invest under section 80C up to Rs 1.5 Lakhs. You need to consider some of these investment options which are best suitable to you based on your investment tenure and features indicated here.








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