Your guide to India's most popular tax-saving investments
What's the story
In India, tax-saving investments are a great way to build wealth while also getting some relief from taxes. The government offers several instruments that not only help you save taxes but also grow your money over time. From fixed deposits to public provident fund, these instruments have different features and benefits. Knowing them can help you make informed financial decisions.
Long-term savings
Public Provident Fund (PPF)
The Public Provident Fund (PPF) is a long-term savings scheme backed by the government. It has a tenure of 15 years and offers a fixed interest rate, which is reviewed quarterly. The minimum investment required is ₹500 per year, and the maximum is ₹1.5 lakh per year. Contributions to PPF are eligible for tax deduction under Section 80C of the Income Tax Act.
Market-linked growth
Equity-Linked Savings Scheme (ELSS)
Equity-linked savings schemes (ELSS) are mutual funds that invest a minimum of 80% of their assets in equities. They have a lock-in period of three years, which is the shortest among tax-saving instruments. ELSS can give you higher returns than traditional savings options, but they also come with higher risks owing to market volatility. Investments in ELSS are also eligible for tax deductions under Section 80C.
Retirement planning
National Pension System (NPS)
The National Pension System (NPS) is a retirement-focused investment scheme that allows you to invest in a mix of equities, corporate bonds, government securities, and more. The minimum contribution is ₹1,000 per year, with no upper limit but a total contribution cap of ₹2 lakh per financial year for tax benefits under Section 80CCD(1B). NPS also offers an additional deduction of up to ₹50,000 over and above the ₹1.5 lakh limit under Section 80C.
Safe investments
Tax-saving fixed deposits (FDs)
Tax-saving fixed deposits (FDs) are offered by banks with a lock-in period of five years. They provide guaranteed returns at fixed interest rates, which are usually higher than regular savings accounts but lower than equity-linked options like ELSS funds or PPF accounts. However, unlike other instruments mentioned above, these deposits do not qualify for any additional deductions beyond the standard limit applicable under Section 80C.
Senior citizen benefits
Senior Citizens Savings Scheme (SCSS)
The Senior Citizens Savings Scheme (SCSS) is a government-backed program exclusively for senior citizens aged 60 years and above. It provides higher interest rates than regular savings accounts, with a minimum deposit of ₹1,000 and a maximum limit of ₹15 lakh. The scheme has a three-year lock-in period, and the interest earned is taxable but qualifies for deductions under Section 80C.