Best Tax Saving investment plans and ideas in India

Few might have already started their tax planning from the beginning of a year, i.e. from the April month itself. However, the majority of people will start to think only at the year-end. So let us discuss what are the tax saving options, one can utilize.

Tax Saving Plans

1) Life Insurance-

  1. a) Endowment or Money Back Plans-These are the one of the oldest ways of investments used by all Indians. But do remember that these products will neither give you full life risk coverage of actually in need nor they give a better return. But at the same time if you are very much happy with the kind of coverage like Sum Assured or Rs.1, 00,000 to Rs.10, 00,000 or returns of around 6% then definitely consider this.
  2. b) ULIP Plans-These are again a combination of INSURANCE+INVESTMENT product. Currently insurance companies are offering these products at cheaper than what they used to be earlier. But still the drawback of such plans are-they will not fulfil your life insurance needful, tracking of fund performance is very inconvenient and if the fund is not performing then hard to come out of such plans.
  3. c) Term Plans-These are the pure life insurance products. You can buy the actual need of insurance very cheaply. Therefore, instead of going for above two products this is necessary for all.

Please read below posts also about Life Insurance and Taxation.

2) Public Provident Fund (PPF)

This is one of the tax saving heaven for the few who want to get the tax deduction under Sec.80C while investing and after that exemption on interest earned as well as the maturity amount. From this financial year limit of yearly investment raised to Rs.1, 50,000. However, do remember that period of PPF is 15 years and liquidity is not so easy. Other than that if, your financial goal matches in this period, then it is best to consider the debt portion of your portfolio towards this investment.

 

Please read below posts also about detailed information of Public Provident Fund (PPF).

3) ELSS Funds

These are mutual funds specifically meant for tax saving purpose. Do remember that there is a lock-in period of 3 years attached with such funds. Also, never be in a wrong belief that if you invest in monthly SIP then you can exit after 3 years. However, each monthly SIP is considered as new investment. Therefore, each monthly SIP needs to be complete 3 years. You can avail tax benefit under Sec.80 C of Income Tax.

Considering the equity nature of this type of investment, it is wrong to think that after 3 years you can come out easily with positive returns. Consider your time horizon of staying with these funds as more than 7+ years and invest. Otherwise, you may end up in negative earnings.

Below is few more information about such funds.

4) Rajiv Gandhi Equity Saving Scheme (RGESS)

This is one more type of equity investment where the only new entrant into equity will be benefited and whose income is less than Rs.10 lakh a year. You can claim deduction under Sec.80 CCG. The maximum investable amount is Rs.50,000. You can claim 50% of the invested amount. This scheme allows you to invest in particular stocks, ETFs or Mutual Funds.

Detailed explanation about the same is available in below link.

5) Employee Provident Fund (EPF)

This is one more type of indirect saving scheme. The employer usually deducts 12% of your salary towards this scheme. Your contribution is available for deduction under Sec.80 C. Advantage from this year is, limit of salary increased from Rs.6, 500 to Rs.15, 000. So whoever earning up to Rs.15, 000 must have to contribute to this scheme and by doing so you can save and invest along with that tax benefit too.

Also, if you fail to contribute then you can contribute to this scheme more than 12%, which is called Voluntary Provident Fund (VPS), by doing so you can increase your tax deduction option also.

You can read more about Employee Provident Fund (EPF) from below links.

6)  Senior Citizen Savings Scheme (SCSS)

This scheme does not apply to all as it is meant for senior citizens only. One can invest up to Rs.15 Lakh only. Detailed features of this scheme are available with India Post.  You can avail tax benefit under Sec.80 C.  However, interest earned from, this is considered as taxable income. In addition, you can read further information from below link.

7) National saving Certificate (NSC) or Bank FDs

Again, these two forms of savings are very much popular in India. NSC is currently available with 5 years and 10-year tenure and Tax Saving FDs at a 5-year term. You can avail tax benefit under Sec.80 C. However, do remember that the returns on these two instruments are taxable. For further detailed information on the same, you can visit below links too.

8) Health Insurance

This one is for of safety major yourself by having health insurance and along with that, you can avail tax benefit under Sec.80 D. If you buy for yourself, spouse or children, then up to Rs.15, 000 can be claimed under this rule. Also, if you buy health insurance for your parents (whether dependent or not) then additional Rs.15, 000 deduction is available. However, parents are senior citizens, and then the limit is up to Rs.20, 000. So overall, one can save a maximum of Rs.35, 000 under Sec.80 D. You can choose plans by reading a few of my earlier posts.

9) Home Loan

Home loan is one more option for those who want to save tax. But what if your interest payout is more harming you than the available tax benefit? Hence, do take care of entering into this option. As this is a loan, but not an investment. There are two types of tax benefits if you opted for home loan and it is self-occupied.

  • Under Sec. 80C whatever principal you pay towards loan is eligible for deduction.  (Do remember that this exemption is only for residential property, only for the purchase and construction of the house, but not for renovation or repair, also if you sell the property within 5 years of availing tax benefits then the benefits availed is reversed).
  • Under Sec. 24 you can avail the interest amount whatever you pay towards this loan. The limit is currently raised from Rs.1.5 lakh to Rs.2 lakh for one self-occupied property.  However, if it is not self-occupied property, then there is no such limit.

Few unknown Tax Saving Tips!!!

  • If you are staying in your parents house, then by paying rent and claiming the same under HRA you can save some tax.
  • You can set off capital losses against capital gains. However, do remember that Short Term Capital Loss can be set off against both Short Term Capital Gain and Long Term Capital Gain. However, Long Term Capital Loss can only set off against Long Term Capital Gain.
  • By donating to charitable trust, you can avail tax deduction under Sec. 80 G.
  • By contributing to political parties, you can avail tax benefit under Sec.80 CCG. One can contribute around 10% of one’s gross total income.
  • Expenses incurred towards your kids tuition fee can be availed as deduction under Sec.80 C. But there another section called Sec.80 E, under which you can claim deduction against the interest paid on education loan.
  • You can claim deductions against expenses of stamp duty and registration expenses incurred in house property registration under Sec.80 C.
  • By opting for co-ownership of house property you can avail tax benefit on your’s as well as co-owner.

However, do remember that above mentioned all options have few positive and a few negative points. So if you invest considering only tax saving options in mind, then it will actually harm you rather than improving your financial life. Hence, while opting the tax saving instrument, you must always think first of your financial goals also. If goal matches with risk, return expectation and period then go ahead for investment. Otherwise, you may be like “Na Ghara Ka…Na Ghata Ka…” 🙂

27 Comments

  1. Hi Basu, I have paid around 40k towards my dad’s medical checkups+medicine in Cash in A.Y 2018-2019. He is senior citizen and currently doesnt have any insurance. Can I claim this amount for deduction under any section?

    Reply
    • Dear Nishant,
      If it is a preventive health check up, then you can claim under Sec.80D but the limit is Rs.5,000.

      Reply
  2. PRADHANAMANTRI JEEVAN JYOTHI BHIMA YOJANA & JEEVAN SURAKSHA BHIMA IS EXEMPTED IN WHICH IT EXEMPTION , I MEAN IN WHICH 80C OR 80CCC OR 80CCD. WHAT IS THE ELIGIBILITY FOR ATAL PENSION YOJANA, AND WHAT ABOUT IT EXEMPTION FOR ATAL PENSION YOJANA

    Reply
  3. Hi Basu,

    Nice blogs and really helpful.

    I am 30 year old IT professional having 1 year Son. I want to do investment for Child education and retirement goals.

    I have taken Ageon religare iTERM policy.

    I want to invest 10,000/m for 10 to 15 years , out of which 5k in equity and rest in secure plans.

    Request you provide best suitable options to achieve above goals.

    I will appreciate your response which will really help me to plan my portfolio better.

    Reply
    • Priyanka-I already replied to your earlier comment which did using the different name “Nishikant-If your goal is around 15 years, then use PPF for debt portion of investment. For Rs.5,000, you can use one large cap fund like Franklin or ICICI Bluechip Fund and another small and mid cap fund like HDFC Midcap Opp or Franklin India Prima Fund.”

      Reply
  4. Hi Basu,

    I have a question. I’m 23 right now and just about to fall under the category of a tax payer.

    I would like to save tax but at the same time prefer a good return going forward. I don’t want to loose in terms of returns only by opting for tax savings. Could you please let me know some good options. Below are some specific things I have as of now. For these I would like to understand What would be the best to invest in terms of “BEST RETURNS IN ITS CATEGORY” and tax savings as well.

    1. A short term saving like, say <6 or 7 years.
    2. Long term saving like, say 10-15 years.
    3. The best way to plan financial life to make the best out of my investments.

    In short. I just want to have the best of both worlds 😀

    Looking forward for your reply. Happy new year BTW.

    Reply
    • Ashish-1) A large cap fund and a short-term debt fund in the ratio of 50:50 (equity:debt).
      2) One large cap fund, one small and mid-cap fund and either HDFC Balanced fund or short-term debt fund (in the ratio of 60:40).
      3) It is wide question, I can’t answer to it.
      Including me, we all want the BEST in the world. But in investment it is patience and continues investment that creates BEST wealth.

      Reply
  5. Dear Basavaraj,

    I am a regular reader of your blog. Your efforts are commendable.

    I have started investing in shares for my retirement which is 7 years away. I understand whatever gains I make after 1 year of investing will be treated a long term capital gain and indexation benefit is also available. Will it be tax efficient?

    I have started investing in equity mutual funds SIP also. Will the same rules apply for equity mutual funds too?

    The calculations appear to be too daunting. Don’t know how I am going to manage. Is there any tool available where I can track all my shares and mutual funds in one place and the capital gains and indexation benefits etc? I tried perfios.com. Not very happy. Most of my shares are in zerodha.com, bonds in sharekhan.com and various mutual funds, fixed deposits in banks etc.

    Reply
    • Arul-For your information, equity investment (whether it is stock or mutual funds) for more than a year is TOTALLY TAX FREE. Indexation benefit not applies to stocks or equity mutual funds. However, for bonds and debt funds you have to apply indexation benefit for LTCG and for STCG it will be taxed as per your tax slab. Your brokers have that facility to provide you the LTCG and STCG statements.

      Reply
  6. Dear Basavaraj,

    I have a doubt regarding taxation. Our company offers two subsidy for its employees – Housing loan interest subsidy and mobile hand set subsidy. Both these are taxable and tax is deducted at source. However, according to company policy , if employee leaves (within 3 years for housing loan subsidy, and within a year for mobile handset subsidy) he need to refund the full amount availed. Under these circumstances, is there any way to claim the tax from the govt already deducted ?

    regards,
    Suresh

    Reply
    • Suresh-Your employer considering these two as income for you. Hence, they are deducting TDS. If your income tax slab is less of at what rate they deducted, then you can get refund from such TDS.

      Reply
      • Ok. Thanks. I wanted to know are there any provisions to show during filing IT returns similar to loss in stock market as there is overall loss if employee leaves that organization within specified time. For example, a tax of 3000 /- is deducted as TDS for a mobile allowance of 10,000/- during 1st July 2015. If he leaves the company during December 2015, say, he has to refund entire 10,000/-. Under such circumstances, he is on the loosing side with a loss of Rs 3000/- . Are there any provisions to recover this?

        regards,
        Suresh

        Reply
  7. Dear Basu….

    I want to invest Rs. 4000/m. in SIP FOR 17 yrs and for tax saving also.

    I chose following two ELSS funds.

    1. Franklin india taxshield
    2. Axis long term equity

    My query is……
    Whether to invest Rs. 4000/m in one fund or 2000/m in both.?

    I will also increase SIP Amount around 1000-2000 yearly

    Reply
      • Thank u for d reply.

        But y not in two ELSS funds? I hv checked in ‘Mutual fund overlapping excel tool’ of FREEFINCAL and compare these two funds. And overlapping comes to 28%.

        Any specific reason to choose only one fund?
        Any drawbacks if I invest in two ELSS funds?

        Reply
  8. Hi Basu,

    My name suresh,aged 31 ,last 3 years i am investing in LIC, PPF this year i am planning to invest in FD,when i went to icici bank the financial adviser suggested to invest in icici pru guaranteed wealth protector which will return more than fd with capital protection. i am new to this kind of investments.please suggest icici pru guaranteed wealth protector comes under which invest(mentioned above in your list) ,please suggest ideal investment apart FD,LIC,PPF
    waiting for your replay.

    Thanks
    Suresh

    Reply
    • Suresh-Stay away. Instead first buy term insurance for yourself on priority. It is a typical insurance+investment product. Even I am against of your investment in LIC and PPF.

      Reply
  9. Hi Basu,

    I am doing Stock Market , so I need to check , the Tax i will pay will be based on my turn over or on the profits i am getting.

    PS : i am trading only in Equity market.

    Thanks in Advance

    Prakhar

    Reply
  10. Hi basu,

    I want to invest one time lump sum amount of say 10k~20k for a long period of time (greater than 5 yrs). please suggest me best way to invest it.

    Reply
    • Kumar-Opt for ELSS (I assume this investment if for tax saving purpose), once the lock-in of 3 years over, then either continue in same fund (if it is doing good) or switch another other non tax saving funds.

      Reply
  11. Basa, the post is very comprehensive. You have covered almost everything regarding Tax saving options. It is like ‘revision’ before going for an exam…Cheers!

    Reply
    • No Shreekant; There is more to tax saving.

      Investment Products: New Pension Scheme

      Tax Saving Tips:
      Leave Travel Allowance
      Domicile Medical Expense
      Food Coupons
      Tax rebate on income below 5 lacs

      Other Sections
      Savings bank Interest u/s 80 TTA
      Health Checkups also u/s 80D

      Reply
      • Guest-Thanks for your points. But I purposely left NPS as I felt it being retirement product which without understanding one’s actual corpus is waste. Regarding your other options, there are endless and list may go on as we may proceed and each of tax saving product have it’s own features. This makes a post lengthy. Hence I restricted myself to popular and comprehensive as much as possible.

        Reply

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