Top 16 Best Tax Saving Investments in India for 2018-19
Another couple of months, we would start new year 2018 and tax payers are busy looking at best tax saving investment options to save income tax in 2018-2019 under section 80C and beyond. Smart investors would save tax by investing in best tax saving options and get higher returns too. Which are the Top and Best tax saving investments options available in 2018 in India to save tax under income tax act 80C and beyond? What are the Best tax saving plans available for salaried employees and business men? Which are the good tax saving investment options in 2018 that helps you save tax and provide amazing returns to you?
Top 16 Best Tax Saving Investments in India for 2018-2019
Top#1 – ELSS Tax Saving Mutual Funds
- ELSS Tax Saving Mutual Funds are the mutual fund schemes where one can get tax benefit on the savings upto Rs 1.5 Lakhs per annum.
- Like any other mutual funds, returns from ELSS Tax Saving Mutual Funds are not guaranteed. You can get higher returns ranging between 12% to 18% by investing in these ELSS funds.
- ELSS Funds have lowest lock-in period of 3 years compared to any other tax saving scheme.
- 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. One should note that each month SIP would have lockin period of 3 years. E.g. if your SIP starts in Nov-17, the lockin period of 3 years ends in Oct-2020. However, your second SIP which you invested in Dec-2017 would have lock in period till Nov-2020.
- Returns from such ELSS funds are tax free as it is an equity mutual fund where you are investing for more than 3 years period.
- Some of the top ELSS tax saving mutual funds are Axis Long Term equity fund, Reliance Tax Saver fund, DSP BR Tax Saver Fund etc.,
- This is one of the best tax saving investments that provides amazing returns and also help you to save tax in 2018-2019.
Top#2 – Public Provident Fund
Ministry of finance is reducing the Small Saving Schemes Quarter on Quarter. Interest rates on PPF account (which was favorite once upon a time) are reduced year on year even now. However, this is still one of the best investment option to save income tax in India now..
- If offers 7.8% interest per annum (Oct to Dec 2017). Govt. of India would keep updating this every quarter.
- Interest received is tax free at maturity.
- PPF account has lock-in period of 15 years.
- Investment upto Rs 1.5 Lakhs is eligible for income tax rate u/s 80C. However, if one invests more than this amount,
- 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 to take PPF. As per new PPF rules in October, 2017 NRI’s would get only Post Office SB interest if they continue the PPF without closure.
- 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. If you invest any amount beyond this amount, the amount would returned to your account without any interest.
- You can invest in PPF every month. If you can invest by the 5th of the month, you can get interest for the remaining period of the month. If you invest Rs 1.5 Lakhs before 5th April, you would get interest for the entire financial year which can help you maximize the returns from PPF over the 15 years period.
- PPF offers several good features and it is one of the best investment plans to save tax u/s 80C in 2018. This is suitable for those who want tax savings and who want to accumulate funds for retirement purpose or children marriage or for children education and for those who are looking for safe and highest returns.
Top#3 – Sukanya Samriddhi Account Scheme
- If you have girl child, you can invest upto Rs 1.5 Lakhs as part of Sukanya Samriddhi account Scheme and get highest interest rates.
- Interest rates are at 8.3% per annum (Oct to Dec 2017).
- Parents / Guardian can make deposits till the girl attains 15 years of age. The account gets matured once girl reaches 21 years. No deposits to be made between 16th year to 21st year.
- The interest received on maturity is tax free.
- One can review Sukanya Samriddhi Account Scheme details before investing in such tax saving investment plan.
Top#4 – Tax Saver Bank FD Schemes
This is one of the old and best investment plan to save income tax under section 80C of IT act.
- Currently after demonetization from last year, interest rates have fallen drastically. Latest interest rates are between 4.5% to 7.5% per annum.
- Interest received from tax saving bank FD schemes are taxable. Means, only investment the tax rebate is available and not on returns.
- Tax Saver FD Scheme has 5 Year Lock-in period.
- Some of the best tax saving FD schemes offered by banks are : Ratnakar Bank – 7.2%, IDFC Bank – 7.2%, DCB Bank – 7.1%, Karur Vysya Bank – 7% and Lakshmi Vilas Bank – 7%. Senior Citiziens would get 0.5% higher for their tax saving FD Schemes compared to regular Tax Saver FD Schemes.
Top#5 – Senior Citizen Saving Schemes (SCSS)
This tax saving scheme provides assured returns for Senior Citizens. Principal amount is safe as they are backed by Government.
- Individual of the age of 60 years or more can open this SCSS account for tax saving purpose.
- Interest rates are at 8.3% per annum (Oct to Dec 2017).
- Maturity period is 5 years.
- 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.
- Premature closure is allowed after one year on deduction of an amount equal to 1.5% of the deposit & after 2 years 1% of the deposit.
- One of the good tax saving investments for Senior Citizens who are willing to save tax and get good returns.
Top#6 – Rajiv Gandhi Equity Saving Scheme (RGESS)
This tax saving scheme is for new investors.
- RGESS offers tax benefits for first time investors who are earning up to Rs 12 Lakhs per annum.
- Maximum investment allowed is Rs 50,000 per financial year. Such amount can be invested in BSE100 stocks or RGESS Mutual funds.
- 50% of such invested amount qualifies for tax benefit u/s 80CCG. 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 as one time. Means you can get the maximum tax relief of Rs 7,725 (30% tax bracket).
- This benefit can be availabled for 3 consecutive years.
- Returns are not guaranteed as investments are made in high risk options like stocks and RGESS mutual funds.
- Starting from 1st April 2017 the scheme is being phased out. This is because a very limited number of assessees avail this deduction. Due to this phasing out, a new investor in Financial Year 2017-18 will not be eligible to claim the deduction under section 80CCG. However, any individual who has claimed the deduction in Financial Year 2016-17 and earlier years shall be allowed a deduction in Financial Year 2017-18 if he is eligible for the same.
Top#7 – 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 EPF interest rate for FY2016-2017 was 8.65% per annum. However it is expected to reduce this to 8.4% for FY2017-2018.
- 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.
Top#8 – New Pension Scheme (NPS)
This is another good investment option to save tax u/s 80C in 2018 who are looking to save for retirement.
- NPS returns vary. In last 5 years, several NPS funds gave returns between 10% to 15%. If you can invest in good NPS fund, you can grab the opportunity of earning between 12% to 15% which can be easily comparable with mutual fund returns.
- This is 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. However, you can invest upto Rs 1.5 Lakhs in Tier-I scheme and get tax exemption u/s 80C.
- 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 open New Pension Scheme (NPS) online or offline.
Top#9 – New Pension Scheme (NPS) u/s 80CCD
Beyond 80C, you can get another Rs 50,000 exemption by investing in Tier-I scheme u/s 80CCD. In Tier-1, you cannot withdraw your investment before retirement. Means, your money would be locked till retirement (excluding certain conditions where you can withdraw). However, this can be a good retirement tool to accumulate retirement corpus amount.
Top#10 – 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 year period. Earlier there were 10 years NSCs, which are discontinued now.
- 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 7.8% per annum for the 5 year NSC (Oct to Dec 2017). This would change quarter on quarter and would be published by Ministry of Finance.
- 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.
Top#11 – Unit Linked Investment Plan (ULIP)
After 2010 IRDA guidelines, Insurance companies have reduced ULIP charges.
- ULIP’s provide life 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.
- You should hold ULIPs for 10-12 years to see good returns. While I would not encourage you to take ULIPs, if you don’t believe in stock markets or mutual funds, this could be one option to save money, have life risk coverage and get some returns.
Top#12 – Life Insurance Plans
Taking a Life insurance is first step in a financial planning.
- One should prefer a good term insurance plan as it comes with low costs and high risk coverage.
- Term insurance plans come with no maturity value. These are designed for risk coverage and not for money saving purpose.
- Consider adequate life insurance coverage based on 10 / 15 years expenses / income. This can help you to secure your life + save income tax. It is one of the good tax saving investments if you have not yet taken any life insurance.
Top#13 – Home Loan Principal Repayment
If you still not brough your dream home, you can go for one now and get tax exemption on home loan principal repayment (Interest is exempted from tax upto Rs 2 Lakhs which is covered in next point). You are eligible for tax exemption for the repayment you make towards your home loan principal. If you do not have home, you can consider this as priority and get tax exemption too.
You may like: Best New Pension Scheme NPS Funds for 2017
Top#14 – Interest on Home Loan – Section 24
You can take home loan and claim interest on home loan rebate upto Rs 2 Lakhs over and above Rs 1.5 Lakhs u/s 80C. e.g. if you have taken home loan and paid interest of Rs 2.2 Lakhs, you can claim Rs 2 Lakhs u/s 24 as rebate. However, the only condition is that it should be self occupied property. You cannot claim such exemption on rented properties.
Top#15 – First Time Home Buyers – Interest on Home Loan – Section 80EE
If you are first time home buyers, you can claim an additional rebate of interest on home loan upto Rs 50,000 per financial year until you repay the amount. E.g. if you are first time home buyers and paid home loan interest of say Rs 2.6 Lakhs. You can claim Rs 2 Lakhs as per section 24 and Rs 50,000 as per section 80EE totaling to Rs 2.5 Lakhs.
Top#16 – Pension Funds
Pension funds provide with an income stream post retirement. They have Deferred Annuity and Immediate Annuity.
- Under deferred annuity plan, you invest annually until your retirement. Once you reach your retirement, you have can withdraw up to 60% of your accumulated corpus and have to re-invest the remaining in an annuity fund which will give you a monthly pension.
- However under immediate annuity plans, you invest a bulk amount one-time and get monthly pension from the next month itself. You would typically use these to invest your retirement corpus.
- I would not be covering tax exemptions for medical insurance or on tax deductions on rental income as it is not tax saving investment options.
Conclusion: These top 16 tax saving schemes would help you to invest under section 80C up to Rs 1.5 Lakhs, another Rs 50,000 under NPS, Home Loan interest of Rs 2 Lakhs and First time home buyers interest rebate of Rs 50,000 totaling to Rs 4.5 Lakhs. You need not consider all options. You can consider some of these tax saving investments which are best suitable to you based on your investment tenure, risk appetite and features indicated here.
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Top 16 Best Tax Saving Investment Plans in India for 2018-2019