Different investments you can consider for tax saving purposes

28 February, 2023

Investing for tax saving purposes is an ideal way to not only reduce your tax liability but grow your wealth at the same time. And there are numerous investment instruments under Section 80C of the Income Tax Act 1961 that investors can choose from depending on their financial goals, risk appetite and tax liability.

Here, we will consider five such tax saving instruments that you can consider:

Equity Linked Saving Scheme (ELSS)

ELSS or the Equity Linked Saving Scheme is a mutual fund scheme which invests a majority of its assets in equities. Since these investments depend on market performance, which can involve fluctuations, they are considered more high risk than some other kinds of investments.

Despite that, ELSS schemes are amongst the most popular investments because of their potentially healthy returns, as well as the tax benefits they offer. They allow tax rebate on investments of up to ₹ 1.5 lakh a year, allowing you to save up to ₹ 46,350 a year in taxes. It is also why it is known as tax saving ELSS.

Here are some other things you should know about ELSS:

• ELSS funds come with a three-year lock-in period, which is regarded as an advantage as it is of one of the lowest lock-in periods for tax-saving instruments in India.
  
  

• There is no limit on the investment amount, but the limit on which tax exemptions can be claimed is ₹ 1.5 lakh.
  
  

National Pension System (NPS)

The National Pension System (NPS) is a social security initiative that offers post-retirement pension benefits to earners in the public, private and even the unorganised sectors in lieu of investing in it. Any Indian citizen, except those from the armed forces, between the ages of 18 years and 60 years, can open an NPS account.

While investing in NPS can provide tax deductions under Section 80C on investments up to ₹ 1.5 lakh, you also get an additional tax benefit, under Section 80CCD(1B), on investments of ₹ 50,000.

Since this is a pension scheme, NPS investments are locked in till you turn 60 years. However, even after retirement, you will not be able to withdraw the entire corpus, as it is mandatory to keep aside at least 40% of it to receive a regular pension from a PFRDA-registered insurance firm. However, the remaining 60% is tax-free.

Public Provident Fund (PPF)

PPF is not only a popular a tax saving scheme, but as an investment avenue offered by the central government, it is also considered quite safe.

However, what makes PPF a sought-after tax saving investment among Indian investors is that the scheme falls under the exempt-exempt-exempt category. This means is that the yearly contribution, the interest earned as well as the proceeds at maturity are exempt from tax.

You can claim tax exemption under Section 80C on investments up to ₹ 1.5 lakh annually, which is also the maximum investment amount permitted. But to keep the account active, you must invest at least ₹ 500 in it every year.

PPF has a lock-in period of 15 years, with an option to extend this tenure by another five years. You can also make one partial withdrawal each year from the seventh year onwards.

Click Here To Learn the Difference Between NPS and PPF

Senior Citizens Savings Scheme (SCSS)

SCSS is a government-backed retirement benefits programme that aims to provide Indian citizens with a regular income once they have reached 60 years of age. While the maturity period of this scheme is five years, it can be extended by another three.

Under Section 80C, the principal amount deposited in SCSS, is eligible for tax deductions up to a limit of ₹ 1.5 lakh. However, this exemption is not applicable if the returns are filed under the new tax system introduced in the Union Budget 2021.

It is also important to note that TDS comes into play for interest income if it is more than ₹ 50,000 in a year. The interest rate, as of Dec 2022, is 7.4%.

National Savings Certificate (NSC)

The National Saving Certificate (or NSC) is another government-backed small saving instrument scheme that is quite popular among Indian taxpayers. The main reason being it is a low-risk investment scheme, like PPF, and it offers guaranteed returns but with a lock-in period of only five years.

You are eligible for tax breaks for investments up to ₹ 1.5 lakh in NSC, and additionally, the interest earned also qualifies for tax breaks the following year, as the interest is added to the original investment and compounded annually.

You can choose to invest any amount you want in NSC as there is no cap on this instrument.

NSC accounts can be opened at any post office in the country and are ideal for people with low-risk appetite who want to save on taxes annually and earn steady returns.

Grow your wealth while saving on tax

There are various investments that provide tax exemptions and tax deductions. It is important to know about these different instruments so you can utilise them to not only save on taxes but to reach specific financial goals as well. The best part is there is lots of information available that can help you make an informed decision about which investments are right for you. Moreover, with HDFC Bank offering a quick and seamless Demat Account opening process, you can start investing right away.

HDFC Bank’s Demat Account offers all kinds of investment solutions, making it more convenient for you to pick the right instruments to build your wealth. Everything you need is at your fingertips, giving you the liberty and ability to shape your financial future in the best way possible.

Whether you are a novice or seasoned investor, an HDFC Bank Demat Account offers access to a plethora of options, from IPOs and Mutual Funds to ETFs and Bonds, and a lot more, all under one roof. This makes managing all your investments simple and straightforward. Backed by India’s No. 1 bank, you can be sure of the utmost safety and security of your investments with HDFC Bank.

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*Terms and conditions apply. This is an information communication from HDFC Bank and should not be considered as a suggestion for investment. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.