Top 15 Best Tax Saving Investments for 2019-2020
In next 2 months we would start 2019 and taxpayers might be looking at various income tax saving investments to save income tax u/s 80C and beyond. You might be thinking about current stock market volatility and may compromise with low tax saving options. One should choose a good tax saving investment plan based on tenure and on risk appetite. Which are the Top and Best tax saving investments available in 2019 in India to save tax under income tax act 80C and beyond? What are the Best tax saving plans available for salaried employees, businessmen, senior citizens etc.? Which are the good tax saving investment options in 2019 that helps you save tax and provide amazing returns to you?
What are tax savings?
You can skip this section if you already know about tax saving options. Every individual might be paying income tax. However the income tax act provides certain exemptions u/s 80C and beyond for certain investments. If you invest in any of these tax saving investment options you can save tax. You may select such investment option based on the tenure and risk appetite.
Top 15 Best Tax Saving Investments for 2019-2020
#1 – Invest in ELSS Tax Saving Mutual Funds for 12% annualized returns
Equity Linked Saving Scheme (ELSS) Mutual Funds are like any other mutual fund schemes, however, provides income tax benefits u/s 80C upto Rs 1.5 Lakhs per annum.
Like any other mutual funds, returns from ELSS Tax Saving Mutual Funds are not fixed and not guaranteed. You can get higher returns ranging between 12% to 15% by investing in these ELSS funds for 5-8 years time frame.
Tax saving ELSS Funds have lowest lock-in period of 3 years compared to any other tax saving options.
Investors can opt for dividend option and get regular income even during the lock-in period. Dividend received through these funds is tax free in the hands of investors.
Good part is that you don’t need to invest in a lump sum. You can invest as low as Rs 500 per month through SIP and such savings can be claimed u/s 80C upto Rs 1.5 Lakhs per annum.
There is a lock-in period of 3 years for ELSS funds. In case of SIPs, each SIP is treated as separate investment and lock-in period of 3 years would be applied to each of them. E.g. SIP starts in Nov-18, the lock-in period of 3 years ends in Oct-2021. However, your second SIP which you invested in Dec-2018 would have lock-in period till Nov-2021.
Returns of ELSS funds are taxed based on long term mutual fund taxation rules. Since it has lock-in period of 3 years, you might redeem only after 3 years. Upon redemption after 3 years, the long-term capital gains (LTCG) up to Rs 1 lakh are tax-free in your hands. LTCG in excess of Rs 1 lakh is taxed at the rate of 10% without the benefit of indexation.
If you can take some risk, investing in ELSS funds can fetch you good returns in the medium to long term. Some of the top ELSS tax saving mutual funds are Axis Long Term equity fund, Aditya Birla Sunlife Tax Relief 96 fund, DSP 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 2019-2020.
#2 – Public Provident Fund
While PPF interest rates has been falling in the last 2-3 years, Ministry of finance has started increasing the small saving scheme interest rates in the last 2 quarters. This is still one of the best investment options to save income tax in India now u/s 80C.
If offers 8% interest per annum (Oct to Dec 2018). 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 up to Rs 1.5 Lakhs is eligible for income tax rate u/s 80C.
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 open PPF account. However, as per the official NRI PPF rules of Feb-2018, NRIs can continue their existing PPF and earn interest like any other investor. They cannot extend a block period beyond 15 years.
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 be 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 year period.
PPF offers several good features and it is one of the best investment plans to save tax u/s 80C in 2019. This option is suitable for low risk investors who want tax savings and who want to accumulate funds for retirement purpose or child marriage or for children’s education.
#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 the highest interest rates.
Interest rates for Oct to Dec 2018 are 8.5%.
Parents / Guardian can make deposits till the girl attains 15 years of age. The account gets matured once a girl reaches 21 years. No deposit to be made between the 16th year to 21st year.
The interest received on maturity is tax free.
You should go through all the new rules of Sukanya Samriddhi Account Scheme details before investing in such tax saving investments which provides benefit u/s 80C.
#4 – Tax Saver FD Schemes
This is one of the traditional ways of investing money to save income tax under section 80C of IT act.
Thank god that interest rates are increasing now. Latest interest rates on bank FD schemes are now between 4.5% to 7.5% per annum. 5 Years Post Office Tax Saving FD scheme offers 8% interest rate 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 are: IDFC Bank – 8.25%, 5 Years Post Office FD – 8%, DCB Bank – 7.75 %, Ratnakar Bank – 7.5%, Lakshmi Vilas Bank – 7.5%, Citi Union Bank – 7.35% and Senior Citizens would get 0.5% higher for their tax saving FD Schemes compared to regular Tax Saver FD Schemes.
#5 – Senior Citizen Saving Schemes (SCSS)
This tax saving option provides assured returns for Senior Citizens. The 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 u/s 80c.
Interest rates are at 8.7% per annum (Oct to Dec 2018).
Maturity period is 5 years.
Interest is paid at the end of every quarter. This is one of the best investment options 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.
#6 – Voluntary Provident Fund (VPF)
The voluntary provident fund is the contribution from employee to his provident fund account and such investment is exempt from tax u/s 80c. 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 FY2017-18 was 8.55% per annum. However, it is expected to increase for FY2018-19 as the bank and post office rates are on increasing mode.
The VPF has the same lock-in period as the EPF i.e. on resignation or within 2 months of unemployment. Partial withdrawal is allowed, but the withdrawal amount is tax-free only if the account is at least 5 years old.
Maturity returns are tax free.
#7 – New Pension Scheme (NPS)
This is another tax saving option to save tax u/s 80C in 2019 who are looking to save for retirement.
NPS returns vary every year. In the last 5 years, several NPS funds gave returns between 7% to 13%, in spite of the recent downfall in stock markets. If you can invest in good NPS fund, you can grab the opportunity of earning between 10% to 15%, which can be easily compared 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.
You can check more about the New Pension Scheme (NPS) here, which is one of the best tax saving investments in 2019-2020.
#8 – New Pension Scheme (NPS) u/s 80CCD
Beyond 80C, you can get another Rs 50,000 tax 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 a retirement corpus amount.
#9- National Saving Certificate (NSC)
National Saving Certificate is issued by Post offices, public sector banks and top 3 private banks that provide tax benefits us 80c. 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 8% per annum for the 5 year NSC (Oct to Dec 2018). This would change quarter on quarter and would be published by the 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 the Guardian can invest NSC.
National Saving Certificate (NSC) guide would help you to know whether this option is suitable for you or not.
#10 – Unit Linked Investment Plan (ULIP)
Insurance agents have cheated investors by selling ULIPs which were charging high allocation charges. This was past. Now, after 2010 IRDA guidelines, Insurance companies have reduced ULIP charges.
ULIP’s provide dual benefit, i.e. life insurance + investment.
New ULIP policies have low policy / administration charges. Many insurance companies are coming up with zero allocation charges now.
ULIPs does not guarantee returns. It provides returns of 5% to 12% 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 are scared of stock markets or mutual funds, this could be one option to save money. This would provide risk coverage and get some returns.
Investment in ULIPS provides tax benefit u/s 80c. You need to refer Frequently Asked Questions to understand more about ULIPs.
#11 – Life Insurance Plans
I keep telling many of our readers that taking a Life insurance is the first step in the financial planning.
One should prefer taking term insurance plan which comes with low premium and high risk coverage.
Term insurance plans come with no maturity value. These are designed for risk coverage and not for money saving purpose. Means if something happens to you and you are no more in this world, your family financial situation would be still secured.
Consider adequate life insurance coverage based on 10 / 15 years expenses / income. This can help you to secure your family life + save income tax u/s 80c.
#12 – Home Loan Principal Repayment
If you still don’t own a home and planning to get one, you would get home loan principal repayment benefit up to Rs 2 Lakhs. This exemption is only for principal amount exemption u/s 80C.
#13 – Interest on Home Loan – Section 24
If you have taken home loan, then you are eligible to get tax benefit on home loan interest up to Rs 2 Lakhs under Section 24. If you are paying a higher amount, you are eligible to get the maximum of Rs 2 Lakhs only. The precondition is that this should be self occupied property. You cannot claim this for home loan where you have given your home for rent. This one of the good tax saving investments for home buyers.
#14 – 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 up to 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.
#15 – Pension Funds
Pension funds provide income after retirement. Pension funds have 2 categories, deferred annuity plan and immediate annuity plans.
Under the 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. Generally, one should do this when they are in the 30s or 40s, which would help to accumulate small amounts over a period of time till retirement.
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.
Conclusion: These 15 tax saving investments 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 investment options which are best suitable to you based on your investment tenure, risk appetite and features indicated here.
All the best for your tax saving investments!!
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Top 15 Best Tax Saving Investments for 2019-2020
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