10 Best Tax Saving Investment Options in India for 2016

Best Tax Saving Investment Options in IndiaBest Tax Saving Investment Options in India for 2016

It’s January 2016 and  everyone is busy looking at best tax saving investment options to save income tax under section 80C. From Financial year 2014-15 onwards, 80C deduction limit has been increased from Rs 1 Lakh to Rs 1.5 Lakhs. With these Best Investment Plans, you can save tax as high as Rs 46,350 by investing the maximum eligible amount of Rs 1.5 Lakhs u/s 80C. What are the various best tax saving investment options available in 2016 in India to save tax u/s 80C? What are the tax saving options for salaried employees? Which top tax saving investment options in 2016 helps you save tax and provide good returns to you? Which are the tax saving options under 80c?

10 Best Tax Saving Investment Options in India for 2016

1) Public Provident Fund

  • If offers 8.7% interest per annum. Govt. of India would keep updating this every year.
  • Tax free returns at maturity.
  • PPF has lock-in period of 15 years.
  • Investment up to Rs 1.5 Lakhs per annum qualifies for IT Rebate under section 80 C of Income Tax Act.
  • Loan facility in PPF account is available from 3rd financial year up to a 5th financial year. The rate of interest charged on loan shall be 2% per annum above the interest paid.
  • Withdrawal permitted from 6th financial year.
  • Non-Resident Indians (NRIs) are not eligible.
  • An individual cannot invest on behalf of a HUF (Hindu Undivided Family) or Association of persons.
  • Minimum investment is Rs 500 and maximum is Rs 150,000
  • You can invest every month, by the 5th of the month and enjoy the interest for the remaining period of the month.
  • PPF offer several good features and this is one of the best investment options to save tax u/s 80C. This is suitable for those who want tax savings and who want to accumulate funds for retirement purpose thereby earning safe and highest returns. This is one of the best investment plans to save tax.

2) ELSS Tax Saving Mutual Funds

  • Offers highest returns (not fixed and not guaranteed) compared to other tax saving options.
  • Lowest lock-in period of 3 years.
  • Investors can opt for dividend option and get regular income even during the lock-in period.
  • Investing in ELSS funds through SIP every month would help you reduce burden of investing a lump sum, take care of market fluctuations and provide higher returns.
  • Since this is an equity mutual fund and investment period is 3+ years, returns / capital gains are tax free.
  • Some of the top ELSS tax saving mutual funds are Reliance Tax Saver fund, ICICI Pru Tax Plan, Franklin India Tax Shield fund etc.
  • You can refer top ELSS Tax Saving Mutual funds for 2015 article for more info.
  • This is one of the best investment plans with higher returns that can also help you to save tax.

3) Tax Saving Bank FD Schemes

  • This is one of the old and best investment option to save income tax under section 80C of IT act.
  • Interest rates vary between 8.5% to 9.75% per annum
  • Interest is taxable
  • 5 Year Lock-in period
  • Some of the best tax saving FD schemes offered by banks are : Bharat Co-operative Bank – 9.5% per annum; Ratnakar Bank – 9.5% per annum ; Lakshmi Vilas Bank 9.25% per annum ; Andhra Bank – 9.1% per annum ; Bank of India – 9.05% per annum

4) Senior Citizen Saving Schemes (SCSS)

  • It provides assured returns for Senior Citizens. Principal amount is safe as they are backed by Government.
  • Interest rates are at 9.2% per annum.
  • Interest is paid at the end of every quarter. This is one of the best investment option to save tax for Senior Citizens as they would get quarterly interest.
  • The maximum investment limit is Rs 15 Lakhs.
  • Interest earned is taxable like any other fixed deposit scheme.

5) Rajiv Gandhi Equity Saving Scheme (RGESS)

  • RGESS offers tax benefits for first time investors who are earning up to Rs 12 Lakhs per annum.
  • Maximum investment is Rs 50,000. Such amount can be invested in BSE100 stocks or RGESS Mutual funds.
  • 50% of such invested amount qualifies for tax benefit u/s 80C. Means if you invest Rs 50,000 in BSE 100 stocks or RGESS Mutual funds for the first time, you would get tax exemption of Rs 25,000 for the first time and only one time. Means you can get the maximum tax benefit of Rs 7,725 (30% tax bracket).
  • Returns are not guaranteed as investments are made in stocks and RGESS mutual funds.

6) Voluntary Provident Fund (VPF)

  • Voluntary provident fund is the contribution from employee to his provident fund account. This is beyond the employee EPF contribution of 12%. However, there is no bound from employer to contribute to this VPF.
  • The maximum amount an employee can contribute is 100% of the Basic and DA.
  • This would carry the same rate of interest of the employee Provident Fund (EPF). The current EPF interest rate is 8.5% per annum.
  • Investment in VPF can be withdrawn only during retirement, hence it is one of the best tax saving options to save income tax.
  • Maturity returns are tax free.
  • You can also check comparision between VPF Vs EPF Vs PPF and know the differences.

7) New Pension Scheme (NPS)

This is another top investment option to save tax u/s 80C who are looking to save for retirement.

  • NPS returns vary between 4% to 10%. In 2013, some of the funds opted in this scheme has provided 14% returns.
  • Low cost investment option. The fund management charges are very low at 0.0009% of investment value.
  • You can invest Rs 500 per month or Rs 6,000 per annum. There is no maximum limit for investment in NPS.
  • Investors have the choice to opt for allocation of equity, bonds and gilts.
  • Maturity amount is taxable.
  • One has to do some homework before subscribing to NPS Scheme.
  • You can review complete details of New Pension Scheme (NPS) here.

8) National Saving Certificate (NSC)

  • National Saving Certificate is issued by Post offices and principal along with interest is backed up by the Govt. of India. Hence, these are safe investment options.
  • NSC’s are available for 5 and 10 year period
  • NSC’s are available for a minimum investment of Rs 500 and in multiples of Rs 1,000 / Rs 5,000 / Rs 10,000
  • There is no maximum limit for investment.
  • Interest rates are 8.5% for the 5 year NSC (VIII) and 8.8% p.a. for 10 years NSC (IX)
  • Rs 100 invested in 5 year NSC would fetch Rs 151.62 and in 10 years would fetch Rs 234.35
  • Interest is compounded every half year.
  • Interest received is taxable. You need to show this as other income while filing ITR and pay income tax. However, such interest can be claimed again as exemption u/s 80C (within the limit of Rs 1.5 Lakhs). Means you would show as other income and exemption u/s 80C and need not pay any tax on such interest.
  • Individuals, Joint and minor, supported by Guardian can invest NSC.
  • Complete guide on National Saving Certificate (NSC) would help you to take decision to invest in this option or not.

9) Unit Linked Investment Plan (ULIP)

  • After 2010 IRDA guidelines, Insurance companies have reduced ULIP charges.
  • ULIP’s provide risk coverage.
  • New ULIP policies have low policy / administration charges.
  • No guaranteed returns. It provides returns of 5% to 11% returns depending on the scheme.
  • Should hold for 10-12 years to see good returns.

10) Insurance Plans

  • An important aspect of an individual is to consider adequate insurance plans for earning member.
  • Prefer term insurance plan as it comes with low costs and high risk coverage.
  • Term insurance plans come with zero maturity value. These are designed for risk coverage and not for saving purpose.
  • Consider adequate insurance coverage based on 10 / 15 years expenses / income.

Conclusion: These top 10 tax saving schemes would help you to invest under section 80C up to Rs 1.5 Lakhs. You need not consider all options. You can consider some of these investment options which are best suitable to you based on your investment tenure and features indicated here.

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Best Tax Saving Investment Options in India for 2016



    Hello ,
    I m a 28 Yr old, and my ctc is 10 lacs pa. Please suggest some investment plans

  • Yusuf

    Hi Team,

    Good day!

    I am 35 year old and working in IT sector, having 7.5 LPA without any investment.

    Please help me out getting suitable investment plan. Please make sure I will not get return in form of INTEREST.

    Thanks & Regards,

    • Gaurav Upadhyay

      Hi Yusuf,
      1 – You can invest in stock market using RGESS.
      2 – You can consider mutual funds investment using SIP .Some best equity linked mutual funds are available in the market. Mutual funds and Share will not return you interest as they return you the money with growth at the time of sell. ( Mutual funds and Shares are subject to risk so choose wisely)
      3-You can purchase LIC policy as LIC policy will not return you interest it return your money with bonus at the maturity.
      4-Please take a health Insurance for you and your family also.

  • Deep

    Hello Sir,

    I need your suggestion!

    I am 28 year old and working in IT sector.

    My package in 5LPA. As per my info I have to pay tax after 2.5 Lakhs rupees.

    Please help me in some investment plan coz I dont want to give tax.

    • Hi Deep, It depends on your risk appetite and tenure. If you want high returns and willing to take some risk, invest in ELSS tax saving mutual funds. These have 3 years lock in period. If not, try NSC which has 5 years lock in period. These are safe and you would get fixed interest.

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