10 TAX SAVING INVESTMENTS IN INDIA WITH HIGH RETURNS!
In general, in India, there are a few investments options other than speculative investments such as shares/ stocks/ commodities, etc.
This Post gives the basic details about the Tax Saving Investments In India.
ELSS – Mutual Funds;
SGBs – Sovereign Gold Bonds;
Life Insurance & Health Insurance;
ULIP – Unit Linked Insurance Plan;
PPF – Public Provident Fund;
NSC – National Savings Certificate;
SCSS – Senior Citizens Savings Scheme.
Sukanya Samriddhi Yojana (SSY)- Longest term Investment for 21 years!
NPS – National Pension Scheme
Let us see these Tax Saving Investments In India one by one:
(1) FIXED DEPOSITS
Fixed deposits are the safe and popular Tax Saving Investment option in India because of the Reserve Bank Of India’s Supervision and control of FDs.
Fixed deposits are of three types:
Bank Fixed deposits;
Post Office Fixed Deposits;
Out of the above three, the Bank Fixed Deposits are also of four types:
Private & Scheduled Banks
Small Finance Banks
Out of these four, the Government controlled Banks may offer low interest rates, but they are very safe.
Because of the strict control of RBI, the Private Banks are also safe. These banks also offer more or less similar interest rates like the government banks.
Cooperative banks are not that much comparable to the government & Scheduled Banks. However, for small amounts, they can be considered since they offer slightly more interest rates.
Small Finance Banks can accept deposits upto a certain limit, but can’t offer loans. They are basically meant to finance their own projects through sister companies. You can’t invest huge amount there. However, they offer better interest rates than the traditional banks.
Post office FDs are the best and Tax Saving Investment option in India as it gives better rates than the banks.
TAX SAVING FIXED DEPOSITS:
If you are ready to invest for 5 years or more in the fixed deposits, most of the banks offer Tax saving option upto Rs.1.5 lakhs per year as per the 80-C of Income Tax Act.
FDs offer high returns that vary from bank to bank – BETWEEN 5% to 7%.
(2) ELSS – MUTUAL FUNDS
If you like to take small risks, you can invest in mutual funds also. Mutual funds are flexible and the fund managing company invests our money in share market based on expert assessment. There are low risk, middle risk and high risk options in most of the mutual funds. High risk funds offer high returns, but the risk of loss of investment may also be high. Low risk funds invest in government bonds, and other safe investment options. However, the returns from low risk funds may be less but may be higher than Bank FDs. At the same time, all the mutual funds have risk of losing money also. You can consider investing in a good fund that is giving decent profits for the past three to ten years.
The convenience in Mutual funds is that you can invest in small amount every month thru Systematic Investment Plan, popularly called SIP that may balance the profits and losses and can give some profits.
If you can lock your money for atleast three years, you can claim Tax saving option upto Rs.1.5 lakhs per year in ELSS (Equity Linked Saving Scheme) as per the 80-C of Income Tax Act.
ELSS Schemes offer high returns that vary from time to time according to the market trends.
(3) SGBs – SOVEREIGN GOLD BONDS
Investment in Gold may be a good option as it may also give some decent returns. However, instead of buying gold as coins or jewels for security / safety reasons, it is a good option to invest in Sovereign Gold Bonds (SGBs) Schemes. Even the Government of India offers such gold saving bonds.
Some schemes offers some tax benefits though not completely as given in other options.
Gold Schemes offer high returns that vary from time to time.
(4) LIFE INSURANCE & HEALTH INSURANCE
It is not advisable to use Insurance as an investment option because the Life Insurance and Health Insurance are primarily meant for the support of yourself and family during any challenges for health and Life.
However, many insurance schemes offer Tax saving options also that you can consider while taking insurance plans.
Health and Life Insurance should be your priority duty in life because their benefits can be felt only during testing times of life.
However, do not dump most of your spare money in insurance plans. Keep mostly 25% of your monthly spare money in insurance and invest the remaining funds in other investment options.
Insurance Schemes offer the highest returns that vary for every scheme.
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(5) ULIP – UNIT LINKED INSURANCE PLAN
As the name suggests, ULIP, or, Unit Linked Insurance Plan offers insurance benefits as well as earning. The companies invest part of our investment in various schemes and share the profits with us.
The best feature in ULIP schemes is that they offer Tax savings under 80-C of Income tax Act for both the insurance premium and the returns from investment. So, it stands as the best Tax Saving Investment In India.
However, the ULIPs come with a lock-in period of 5 years.
This Scheme offers the highest returns that varies for different schemes.
(6) PPF – PUBLIC PROVIDENT FUND
PPF is the safest Tax Saving Investments option with decent and high returns and with complete tax savings option. The invested amount, Interest and Maturity amount – all are tax exempted.
You can claim tax exemption of 1.5 lakhs under 80-C of Income tax act for everything under this scheme.
The lock in period is 15 years. You can extend it for another five years.
After 7 years of investment, partial withdrawals are allowed.
It is highly advisable to invest atleast 25% of your monthly spare money in PPF.
This Scheme offers the highest return of 7.1% at present.
(7) NSC – NATIONAL SAVINGS CERTIFICATE
This account can be opened in any Post office. Being a Government backed scheme, this is also the Safe and Tax Saving Investments In India.
This too is similar to FDs of banks and post offices and the interest in NSCs are usually more than the bank FDs.
The interest earned in an year is added to investment in the next year.
You can claim tax exemption of 1.5 lakhs under 80-C of Income tax act for the interest as well as reinvestment under this scheme.
This Scheme offers the highest return of 6.8% at present.
(8) SCSS – SENIOR CITIZENS SAVINGS SCHEME
If you are above the age 60, this is the best Tax Saving Investment option to invest for securing your monetary needs in the old age.
Being a government backed scheme, this scheme offers very good interest rates and the interest can be claimed for tax exemption.
You can start with just Rs.1000 as one time investment. The maximum limit to invest is Rs.9 lakhs for an individual or Rs.15 lakhs for Joint investment.
You can also have premature withdrawal facility in case of emergency needs.
This Scheme offers the highest return of 7.4% at present.
(9) SSY – SUKANYA SAMMRIDDHI YOJANA
If you can lock your investment for 21 years, you can choose this Scheme of the Government of India. This is primarily meant for saving for the future of Girl child.
The best feature in this scheme too is that it offers Tax savings under 80-C of Income tax Act for both the insurance premium and the returns from investment up to Rs.1.5 lakhs. So, it stands as the best Long term Tax Saving Investment In India.
This Scheme offers the highest return of 7.6% at present.
(10) NATIONAL PENSION SCHEME (NPS)
The contributing amount up to Rs.1.5 lakh with additional deduction up to Rs. 50,000 can be claimed for tax exemption under 80-C and 80CCD (1b).
If 10% of the basic salary of the employee is contributed by the employer in the Scheme, that 10% amount is also not taxed.
Thus, this scheme offers the best three benefits. However, only 40% of the fund is tax exempted at the time of maturity. It is mandatory to invest 40% of the corpus in the annuity plan in order to earn monthly income. The annuity paid to the investors after retirement is taxable.
You can invest even a minimum amount of Rs. 500 regularly.
This Scheme offers the highest return of up to 12% at present depending on the tenure.
Hope these investment details are useful to you to consider and decide. We will see all the options in detail in future one by one.
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