Tax planning is a crucial part of financial planning that not only helps you legally reduce your tax burden but also brings you closer to your long-term financial goals. A key part of this is knowing the various investments and expenses that qualify for deductions and exemptions under the Income Tax Act, which allow you to save as much of your hard-earned money as possible.
If you’re looking to make some quick investments before the financial year 2024-25 ends or planning your tax strategy for the next year, you’ve landed at the right place! Let’s check out the different income tax saving options available to investors including the Section 80C investments and tax saving investment options other than 80c.
Importance of Tax-Saving Investments
The best tax saving options are those that help you earn returns according to your risk profile while also helping you reduce your tax burden. Also, certain expenses like health and life insurance premiums, education loans, and home loans can act as income tax saving options. One may not think of them as traditional investments, but they offer protection from life’s uncertainties and allow us to invest in ourselves by securing our health, our family’s future, and our education. Here are some more reasons why these options are important:
- They help individuals lower their tax burden legally while also generating decent returns.
- These deductions and exemptions promote financial discipline, long-term wealth creation, and economic growth. For example, Section 80C deductions encourage individuals to invest for a better future. Section 80D benefits on health insurance premiums encourage individuals to protect themselves and their loved ones against hefty medical bills. Section 80E benefits support higher education and skill development.
- The returns of these investments are higher than other options like savings accounts, which offer minimal tax benefits and low returns that do not beat inflation.
- While Section 80C helps reduce taxable income by Rs. 1.5 lakh, it can only go so far. That’s why employees should be aware of the many tax saving options for salaried other than 80c, like those falling under 80D to 80U. These help create financial stability in the long run.
- A number of tax saving options, such as PPF, EPF, and NPS are government-backed schemes that allow individuals to create a retirement corpus while enjoying tax benefits.
Popular Tax-Saving Investment Options Under Section 80C
Section 80C of the Income Tax Act is perhaps one of the most well-known tax saving options in India. The provision allows individuals to claim deductions of up to Rs. 1.5 lakh annually on certain investments. Let’s have a look at 10 such investments and expenses that can help you reduce your tax liability for the year:
1. National Pension Scheme (NPS)
The NPS is a government-backed scheme designed to help citizens build a retirement fund. Regulated by the PFRDA, this scheme is open to all Indian citizens over 18, whether salaried or self-employed. In NPS, the investment is made by fund managers governed by the PFRDA in equity, corporate debt, G-Secs, and alternative investment funds. Investors can choose how to allocate their contributions across these asset classes and enjoy the benefit of very low fund management fees.
Since investments are made in such assets, the returns of NPS are market-linked. However, historically the scheme has delivered 9% to 12%. Like other 80C investments, it offers a deduction of up to Rs. 1.5 lakh per financial year, but another benefit under Section 80CCD (1B) makes NPS one of the best tax saving investment plans available to investors. This section allows an additional Rs. 50,000 deduction on contribution to NPS, which is over and above the Rs. 1.5 lakh limit of 80C.
2. Unit Linked Insurance Plans (ULIPs)
ULIPs combine insurance with investment. One can think of them as mutual funds offered by insurance companies. One part of the premium the investor pays goes toward life insurance coverage, while the rest is invested in a selection of funds like equity, debt, or hybrid funds chosen by the investor. Thus, the investor can choose the appropriate funds as per their risk tolerance and financial goals. A good ULIP also offers investors the option to freely switch between funds as their financial situation changes.
Not only does the premium paid towards ULIP qualify for deductions under Section 80C, but the lump sum amount received when the policy matures is also tax-free (if annual premiums do not exceed Rs. 2.5 lakh) according to Section 10(10D).
3. Equity-Linked Savings Scheme (ELSS)
ELSS are also known as the tax-saving mutual funds as they allow Rs. 1.5 lakh deduction under 80C. As the name suggests, these funds invest mainly in equities, which makes them a high-risk, high-reward instrument. They have a lock-in period of 3 years, which is among the shortest of all 80C investments. Despite the short lock-in, investors should remember that since ELSS are primarily equities, they should be given ample time to grow, as equity investments perform better over the long term.
ELSS returns are not tax-free. When redeeming units, long-term capital gains (LTCG) tax is charged at 12.5%. However, Rs. 1.25 lakh LTCG in a financial year is exempt from tax.
4. Public Provident Fund (PPF)
The PPF is a long-term, government-backed scheme which offers modest but guaranteed returns. The interest rate is announced every quarter by the Government of India and as of Q4 of FY 2024-25, the rate is 7.1% p.a. Another reason for its popularity is its status as an Exempt Exempt Exempt (EEE) investment, which means contributions made, the interest earned, and the maturity amount are all exempt from tax.
PPF has a long lock-in period of 15 years. Partial withdrawals can only be made under specific circumstances or after holding the account for at least 6 years. Investors should assess their liquidity needs before investing.
5. Employees’ Provident Fund (EPF)
EPF is a mandatory retirement scheme for salaried individuals, where both the employee and the employer contribute a portion of the employee’s monthly salary. Both contribute 12% of the employee’s basic salary and dearness allowance, while the employer makes an additional contribution towards the Employee Pension Scheme (EPS). EPF also enjoys the status of EEE investment and has flexible withdrawal rules which contribute to its effectiveness.
6. Life Insurance Premiums
Life insurance is one of the most important investments a person can make as it provides financial protection for their loved ones in the event of an unfortunate event. Besides this protection, life insurance policies also offer the tax benefits of Section 80C.
7. Tax-Saving Fixed Deposits
Tax-saver fixed deposits work similarly to how normal fixed deposits work. They have a lock-in period of 5 years and their interest rate ranges from 5.5% p.a. to 7.75% p.a. A tax-saver fixed deposit can help you reduce your taxable income by Rs. 1.5 lakh under Section 80C.
8. National Savings Certificate (NSC)
NSC is another government-backed savings scheme which offers guaranteed returns. It is aimed primarily at conservative, small to middle-income investors looking for a secure investment option with fixed returns. The scheme has a lock-in period of 5 years and as of Q2 of financial year 2024-25, it offers a return of 7.7% p.a.
9. Senior Citizens Savings Scheme (SCSS)
The government offers this scheme to Indian citizens over the age of 60. SCSS has a lock-in period of 5 years, during which investors can enjoy a steady stream of income through regular interest payments. As the name implies, this scheme is designed specifically to provide financial security to senior citizens during their twilight years.
The SCSS generally offers a high interest rate, which is fixed by the Government regularly. For FY 2024-25, the SCSS return rate was set at 8.2% p.a. After the lock-in period, investors have the option of extending their account in blocks of three years. While the SCSS offers the Rs. 1.5 lakh Section 80C benefit, interest earned is taxable. If interest earned exceeds Rs. 50,000 in a year, TDS is also deducted.
10. Sukanya Samriddhi Yojana (SSY)
Only the parents or guardians of a girl child under the age of 10 can take part in this government-backed scheme which encourages long-term savings for the education and marriage of a girl child. SSY has a lock-in period of 21 years or till the child gets married, whichever happens first. As of Q2 FY 2024-25, this scheme returns an attractive 8.2% p.a. On top of the Section 80C benefit, the interest earned and maturity amount are exempt from tax under Section 10(11A).
Tax-Saving Investment Options Other Than Section 80C
Here are 10 tax saving investments other than 80c which can help you significantly downsize your tax burden:
1. Section 80D – Deduction on health insurance premiums
Health insurance policies also provide tax benefits! When you buy a policy for yourself, your spouse, or your dependent children, you can claim a deduction of up to Rs. 25,000 on it. What’s more is if you insure your parents, you can claim another deduction of up to Rs. 25,000, which rises to Rs. 50,000 if your parents or other family members are senior citizens. Individuals over 60 insuring themselves, their family, and their parents can claim a deduction of up to Rs. 50,000. Thus, if a senior citizen insures their family (Rs. 50,000) and their parents (Rs. 50,000), a total deduction of up to Rs. 1 lakh can be claimed. A maximum deduction of Rs. 5,000 can be also claimed for preventive health check-ups.
2. Section 80E – Deduction on interest paid on higher education loan
If you, your spouse, children or a student for whom you are a legal guardian are pursuing higher education from India or abroad, the loan you take for education is eligible for tax benefits under Section 80E. The interest portion on education loans can be deducted from your taxable income, without any upper limit. This benefit is available for 8 years, or until the loan is fully repaid.
3. Section 80CCD (1B) – Additional deduction on contribution to NPS
This section allows individuals to claim an additional deduction of up to Rs. 50,000 on contributions made to the National Pension Scheme. This is in addition to the limit of Rs. 1.5 lakh under Section 80C, taking the total possible NPS deduction per financial year to Rs. 2 lakh.
4. Section 24(b) – Interest paid toward home loan
Section 24(b) is somewhat similar to Section 80E. According to this section, individuals can claim a deduction on interest paid toward a home loan. When the property is self-occupied, up to Rs. 2 lakh per year on interest payments can be claimed as deductions. If the house is let out, however, there is no upper limit on interest deduction. Furthermore, deductions up to Rs. 1.5 lakh can be claimed under Section 80C on the principal amount repayments.
Sections 24(b), 80D, and 80E are three of the most powerful tax saving investment options available other than 80C. Connect with an investment advisor today to understand how significantly they can reduce your income tax burden.
5. Section 80DD – Deduction on medical treatment for dependent handicapped
This section of the IT Act allows individuals to claim a deduction for expenses incurred on the medical treatment, nursing, and rehabilitation of a dependent with a disability, like a special child or a disabled grandparent. A maximum of Rs. 75,000 can be claimed in case of a normal disability (40-79% disabled), and Rs. 1,25,000 for a severe disability (over 80% disabled). A certificate from a government or government-approved hospital is required to claim this deduction.
6. Section 80DDB – Deduction on medical expenditure on self or dependent
Individuals can claim a deduction for expenses on the medical treatment of specific diseases for themselves or their dependents. Claims can only be made for expenses on the treatment of specific diseases like cancer, Parkinson’s disease, Alzheimer’s, and AIDS. The full list of diseases covered by the IT Department is given under Rule 11DD of the IT Act and claims must be supported by relevant certificates. For individuals younger than 60 years, a deduction of up to Rs. 40,000 or the actual amount paid, whichever is less, can be claimed. Senior citizens can claim up to the lower of Rs. 1 lakh or the actual amount paid on treatment.
7. Section 80U – Deduction on medical treatment for disabled taxpayers
While Section 80DD allows for deductions on the treatment of a dependent disabled, Section 80U concerns deductions when the taxpayer has a disability. A medical certificate from a recognised hospital is required to claim this benefit, which offers the same deductions as Section 80DD – Rs. 75,000 for 40 to 79% disability, and Rs. 1,25,000 for disability over 80%.
8. Sections 80TTA and 80TTB – Interest earned from saving accounts
These two tax saving options relate to interest income. Up to Rs. 10,000 total interest earned from bank savings accounts (not FDs or RDs) in a financial year is exempt from tax under Section 80TTA.
Section 80TTB is reserved only for senior citizens, who can deduct up to Rs. 50,000 on interest income earned from deposits held with banks (including fixed, recurring, and savings deposits), cooperative societies, or post offices.
9. Section 10 (10D) – Proceeds from life insurance policies
After a life insurance policy or ULIP matures, the proceeds are not taxed according to Section 10(10D). This is subject to certain conditions, like the yearly premium of a ULIP not exceeding Rs. 2.5 lakh per year. In the unfortunate event of the policyholder’s demise, the death benefit received by the beneficiary is also tax-free, regardless of the premium paid.
10. Section 80G – Deduction on charitable donations
Taxpayers can claim deductions on charitable donations made to certain organisations. The amount that can be claimed varies from one organisation to another. Some donations are eligible for a 100% deduction, while some only for 50%. A stamped receipt along with the PAN of the organisation is required to claim this benefit.
Comparing Investment Options in India
Let’s compare the benefits, returns, and lock-in periods of various options offering tax deductions and exemptions under Section 80C and tax savings other than 80c:
| Investment Option | Under Sections | Lock-in Period | Returns | Tax Benefits |
| Unit Linked Insurance Plans (ULIPs) | 80C and 10(10D) | 5 years | Market-linked returns which can also vary based on the type of fund selected by the policyholder. | Rs. 1.5 lakh deductions under Section 80C plus tax-free maturity under Section 10(10D) if annual premiums don’t exceed Rs. 2.5 lakh. |
| Equity-Linked Savings Scheme (ELSS) | 80C | 3 years | Market-linked returns. | The shortest lock-in period among all 80C instruments. Offers deduction up to Rs. 1.5 lakh, but LTCG are subject to taxation upon redemption. |
| Public Provident Fund (PPF) | 80C | 15 years (Partial withdrawals can be made after 6 years or under specific conditions) | 7.1% p.a. (For Q4 FY 2024-25) | EEE category instrument, so contributions, interest, and maturity are all exempt from tax. Allows Rs. 1.5 lakh deduction under 80C. |
| National Pension Scheme (NPS) | 80C and 80CCD(1B) | Funds are locked until the investor turns 60, but partial withdrawals are allowed after 3 years which are limited to specific purposes. | Offers market-linked returns which also depend on the investor’s chosen asset allocation. | On top of the Rs. 1.5 lakh deduction under 80C, NPS offers an additional Rs. 50,000 deduction under Section 80CCD(1B). |
| Employees’ Provident Fund (EPF) | 80C | Withdrawals are tied to employment status. Funds can be withdrawn fully after retirement or if an individual becomes unemployed for two months. Tax-free withdrawal can also be made after 5 years. | 8.25% p.a | Another EEE category instrument which offers Rs. 1.5 lakh Section 80C benefit. |
| Tax-Saver Fixed Deposits | 80C | 5 years | 5.5% to 7.75% p.a. | Deposit allows a Rs. 1.5 lakh deduction from one’s taxable income under Section 80C. |
| National Savings Certificate (NSC) | 80C | 5 years | 7.7% p.a. (As of Q2 FY 2024-25) | Offers Section 80C benefit, allowing investors to deduct Rs. 1.5 lakh from taxable income. |
| Senior Citizens Savings Scheme (SCSS) | 80C | 5 years | 8.2% p.a. (For FY 2024-25) | One of the best tax saving investment options for older citizens. Allows seniors tax relief up to Rs. 1.5 lakh under 80C, however, interest earned is taxable. Annual interest exceeding Rs. 50,000 attracts TDS. |
| Sukanya Samriddhi Yojana (SSY) | 80C and 10(11A) | 21 years or until the girl child gets married after the age of 18 (Whichever is earlier) | 8.2% p.a. (As of Q2 FY 2024-25) | Another Section 80C instrument that allows a deduction of Rs. 1.5 lakh from taxable income. Maturity and interest are also tax-free under Section 10(11A). |
| Education Loan | 80E | No lock-in period. | No returns | Allows one to claim a deduction on interest paid on higher education loan . No upper limit to the amount that can be claimed as deduction for 8 years or till the loan is repaid completely. |
| Home Loan | 80C and 24(b) | No lock-in period. | No returns | Principal repayment towards home loans are eligible for deductions under 80C. Furthermore, Section 24(b) allows deductions on interest repayments (No upper limit if the house property is let out and a maximum of Rs. 2 lakh deduction when the property is self-occupied) |
| Life Insurance | 80C and Section 10(10D) | No lock-in period. | No returns | Premiums paid toward life insurance policies for yourself, your spouse, children, or parents are eligible for tax deductions under Section 80C up to a maximum of Rs. 1.5 lakh per year. The death benefit and maturity amount are also tax-free under Section 10(10D). |
| Health Insurance | 80D | No lock-in period. | No returns | Maximum Rs. 25,000 deductible for insuring self, spouse, or children. An additional deduction of up to Rs.25,000 for non-senior citizen parents, or Rs. 50,000 for senior citizen parents.The benefit when the insurer is a senior is Rs. 50,000, taking the maximum possible deduction to Rs. 1 lakh. |
Key Considerations for Choosing Tax-Saving Investments
Here are a few things you should keep in mind when selecting tax saving options in india:
- The total deduction limit under Section 80C is Rs. 1.5 lakh per financial year, so you cannot claim more than this amount even if you make multiple investments under this section. For example, if you invest Rs. 50,000 in PPF, Rs. 1 lakh in an ELSS, and Rs. 20,000 in tax-saver fixed deposits, the total investment you made is Rs. 1.7 lakh. You will only be able to claim Rs. 1.5 lakh under 80C.
- The above point highlights the importance of choosing tax saving options wisely – Factors like returns, risk appetite, and financial goals should be thoroughly considered by investors. For example, government-backed options offer near guaranteed, but modest returns. Potentially high-return options like ELSS are only for investors with high-risk tolerance since their returns are market-linked.
- Most of the options we discussed in the blog (Section 80C as well as tax saving investments other than 80c) are only valid under the old tax regime. The new regime offers lower tax rates but does not allow most deductions and exemptions. That’s why you should also consider which of these two structures saves you the most tax. You can use our tax calculator to compare the tax liability under both regimes.
- Many of the best tax saving options are long-term schemes with lock-in periods. Assess when you may need funds before choosing such an option.
Conclusion
Many tax saving options in India can be found in the Income Tax Act, of 1961. Section 80C of the Act is the most well-known among investors, as it offers deductions on popular instruments like PPF, EPF, ULIP, ELSS, and NPS. Several tax saving investments other than 80c are also available under different sections, like deductions on home loan interest under Section 24(b) and education loan interest under Section 80E.
Not all the income tax saving options listed above can be availed in the new tax regime. In fact, most of them can only be used to reduce tax liability under the old structure. Both regimes have different features, so you’re going to have to understand how they work, and carefully evaluate your income, expenses, and investments to choose the tax regime that saves you the most money.
A good tax consultant can be the difference between paying more tax than necessary and optimising your savings. A tax consultant can guide you through the complex and ever-changing world of taxes. They can help you choose not only the best tax saving options but also options that align with your financial goals and risk tolerance. This is important because saving the most tax possible should not be the only aim. Your investments should also contribute to your long-term goals. Union Budget 2025 is bound to introduce new tax policies. A financial consultant can help you stay updated on these changes so you can make better financial decisions. Get in touch with one today!
