Here we list out top 5 tax saving investment options where an earning individual can park one's money for higher return and save income tax outgo in current fiscal:
1] ELSS mutual fund: Under Section 80C of the income tax act, an income tax payer can claim tax exemption on up to ₹1.5 lakh invested in ELSS mutual funds. This is one of the equity mutual funds that tends to give highest return among all available tax saving investment tools. This mutual fund allows an investor to invest either one time upfront or in SIP mode. However, while investing in ELSS mutual funds, an investor must know that it has a lock-in period of 3 years. The investor should also know that while claiming tax exemption under Section 80C, the maximum limit would include other heads like EPF, PF, PPF (Public Provident Fund), etc.
Speaking on ELSS mutual fund return, SEBI registered tax and investment expert Jitendra Solanki said, "ELSS mutual funds are like any other equity mutual fund. If an investor invests in this equity fund for long term, one can expect at least 12 per cent return on one's money and beat the average inflation growth during the investment period with ease."
2] National Pension System or NPS: This one of the unique tax saving investment tool, which gives you exposure in both debt and equity via single investment. An NPS account holder can choose debt and equity ratio at the time of account opening. Though, an investor can't get more than 75 per cent equity exposure on one's money. An investor can claim income tax exemption on up to ₹1.50 lakh in one financial year under Section 80C whereas a additional ₹50,000 exemption is allowed under Section 80 CCD (E). So, those who have exhausted their Section 80C limit by investing in ELSS mutual fund or other tax saver investment tools, they can go for the NPS account to avail this additional ₹50,000 limit available for tax exemption.
Speaking on NPS scheme, Kartik Jhaveri, Director — Wealth Management at Transcend Capital said, "NPS account holders can have more than 75 per cent equity exposure. but, to keep a balance between equity and debt, it is advisable for NPS account holders to keep 50:50 ratio. In long term, investors can expect 12 per cent return on equity and 8 per cent return on debt, leading to near 10 per cent [{(12/2) + (8/2)}] net return on one's NPS investment."
3] Public Provident Fund or PPF: This is one of the government backed small saving schemes, which is 100 per cent risk free. PPF interest rates are given on quarterly basis and compounded on yearly basis. The government of India announced PPF interest rate at the end of every quarter. For January to March 2023 quarter, the central government has announced 7.10 per cent PPF interest rate, keeping it unchanged for the upcoming quarter beginning with the new year 2023. PPF investment also allows a taxpayer to claim income tax exemption on up to ₹1.5 lakh in single financial year under Section 80C.
4] Post office term deposit: The central government has increased tax saving term deposit interest rate from 6.70 per cent to 7.0 per cent while announcing small-saving schemes interest rate for January to March 2022 quarter. Retail banks might take time in passing on this benefit, so those mulling to open a tax saving term deposit account, they are advised to open it in post office as it is directly governed by the government and it would become available automatically with the beginning of new year 2023. However, a term depositor must know that tax saving term deposit has a lock-in of 5 years.
5] Voluntary Provident Fund or VPF: .f you are falling under the tax bracket and your Section 80C limit of ₹1.5 lakh is going unexhausted. You should ask your employers for an additional EPF or PF deduction called VPF. In this VPF option, your recruiter need not to invest contributory amount for your additi9onal PF contribution but you will be able to save more in your retirement fund availing 'EEE' benefit on your PF contribution. One should know that VPF would enable you to get highest return from the risk-free investment tool. PF interest rate for FY2022-23 is 8.10 per cent.
Apart from these 5 tax saving options, if someone is blessed with a daughter, then Sukanya Samriddhi Yojana (SSY) can also be a good option to look at. A SSY account holder can claim income tax exemption under Section 80C of the income tax act on up to ₹1.50 lakh investment in single financial year.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
