Top 5 Tax Saving Investment Products

Remember what Benjamin Franklin said, "A penny saved is two pennies earned"! And, you end up saving several pennies when you invest in tax saving instruments. In fact, including tax saving instruments into your investment portfolio ends up increasing your annual income by quite a bit.

Besides, why shouldn’t you reap the benefits of saving tax when the government itself provides you multiple avenues to do so? So, look for financial instruments that fall under the purview of Section 80C of the ITA as usually, only those are tax exempt.

To further aid your search, we have discussed the top 5 tax saving investment products below.

1. Equity-Linked Savings Scheme (ELSS)

ELSS mutual funds qualify for tax benefits under Section 80C and offer moderate to high returns. While anyone can easily apply for these funds, they are especially loved by investors who have a medium to long investment horizon.

These mutual funds predominantly invest in stock markets with a minority stake among other asset classes. Earnings up to Rs 1.5 lakhs on ELSS funds are entirely tax-deductible. The only thing to remember is that these funds have a short lock-in period of three years.

2. National Pension Scheme (NPS)

NPS makes for a very prudent investment as it offers guaranteed returns on maturity. More importantly, contributions to this instrument are tax-deductible under different sections. Sure, you can claim a deduction of up to Rs. 1.5 lakhs under Section 80C of the ITA, but that’s not it.

You can also avail of an additional tax deduction of up to Rs. 50,000 under Section 80CCD (1B) of the ITA. Lastly, an additional 10% of an employee's basic salary is not taxed in the NPS if paid by their employer. The triad of these three deductions is what makes NPS a very tempting tax saving investment product.

Additional Read: What Are Tax Saving Mutual Funds?

3. Public Provident Fund (PPF)

Here is a long-term investment cum savings instrument, PPF, which is also a great tax-saving vehicle. It offers moderate interest returns that are guaranteed on maturity. You can also make partial withdrawals after completing the 5-year lock-in period while staying invested in the PPF scheme.

Much like other tax savings instruments under Section 80C, you can claim an annual tax deduction of up to Rs. 1.5 lakhs on PPF.

4. Unit Linked Insurance Plan (ULIP)

ULIPs are an excellent long-term investment. The returns on this insurance plan depend on the performance of the equity and debt mutual funds it invests in. Usually, ULIPs are a relatively safe instrument, and you can claim a tax deduction of up to Rs. 1.5 lakhs on them under Section 80C.

5. Fixed Deposits (FDs)

Invest in tax saver FDs to fetch yourself a tax deduction of Rs. 1.5 lakhs under Section 80C of the ITA. Typically, these FDs have a lock-in period of 5 years, are entirely risk-averse, and offer guaranteed returns at a fixed interest rate.

Additional Read: 5 Tips to grow your wealth while saving taxes

The bottom line

Now that you know of the most popular tax saving investment instruments, it’s time to diversify your funds across them. If you want to begin with ELSS mutual funds, apply for the top-rated ones on Tata Moneyfy's mutual fund investment app. Our digital portal lets you compare and apply for different categories of mutual funds and SIPs, all recognized by SEBI and rated by credible agencies like Morning Star and Value Research.

So, why wait? Apply today!