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Comparision of Best Tax Saving Investment Options under Section 80C

Team Jar
January 31, 2023
Comparision of Best Tax Saving Investment Options under Section 80C

These Smart Tax-Saving Investment Options will help you to reduce your Tax Burden. Check out the Comparison.

Investing in Tax Saving Investment Options is important because having a savings account and emergency funds are only half of the equation.

When compared to investing, savings actually make you poorer by merely earning you 2% to 4%.

Contrastingly, investing earns you higher returns when you know where your money goes, and that's something empowering. What's more? You'll end up gathering even more wealth for yourself.

Investing, wise investment for that matter offers more benefits than you know:

  • Your money increases its value over time
  • It decreases your liabilities
  • And the best – it helps you save taxes.

Saving Taxes by Smart Investing

Tax planning and smart investing go hand-in-hand together. When done correctly by investing in portfolios that are tax effective, you can save Rs.1.5 Lakhs of tax a year!

That's a pretty good deal, considering that tax planning usually gets the "do it later" treatment. But if you start your planning from earlier in the year, you can save taxes by dipping your cash in smart investing.

Smart investment options mean putting your money in the tax plans, schemes, and types with solid returns in the long term. Your cash can tackle inflation much better through such options.

The Indian Government has some tax-saving investment types under Section 80C of the Indian Income Tax Act, 1961. It gives you ample space to earn fixed returns over time.

Let's move ahead as we cover all the ways you can invest under Sec 80C and reap maximum benefits.

What Does Section 80C of the IT Act Offer?

Section 80C gives you two investment options – fixed return with govt-backed investment options and variable returns with the non-govt investment plans.

And tax exemption is only for guaranteed returns. But, non-govt options give you a choice to lessen your tax liabilities. So, it's a win-win situation, investing in both.

The government-backed plans under 80C include:

  1. ELSS (Equity Linked Saving Scheme)
  2. Bank Fixed Deposits
  3. Life Insurance plans
  4. Public Provident Fund
  5. National Savings Scheme
  6. Employee Provident Fund
  7. Voluntary Provident Fund
  8. Sukanya Samriddhi Yojana
  9. Five-year Post Office Fixed Deposits
  10. Senior Citizen Savings Scheme
  11. Unit-linked Insurance Plans
  12. Infrastructure Bonds

Now, selecting an investment plan is a tricky business. You have to look for liquidity, safety, flexibility, costs, ease of investment, income taxability, transparency, and returns.

But most importantly, you need a proper understanding of how these returns will be taxed. We have come up with the best tax-saving options under Sec 80C – both Government and non-government plans.

So, whether you're an adult, teenager, a parent, - there is something for everyone!

Best Tax-saving Investments

You know what it's like to be on the hook for taxes. But starting investing from early quarters in a financial year allows you to avail maximum returns.

Here is a comparison of all investment plans that let you reap maximum returns under Sec 80C and give you ample space to diversify your portfolio with their fixed returns and lock-in periods.

These would give you a better idea of returns on investment and help make better investment decisions.

Let's discuss all of these in detail and help you ease the investment management process.

ELSS Mutual Funds

Are you a stock market fan who loves to keep track of the ups and downs? Then ELSS might be perfect for you.

It offers two key features: tax exemption and a three-year investment lock-in period. The 3-year lock-in duration is the lowest compared to other Section 80C investments.

While the returns depend on market prices and a plan's performance, the current returns are the highest at 16.5%. Long-term capital gains beyond Rs 1 lakh from equity funds are taxable now.

ELSS funds have been praised for their transparency and low costs. But don't get carried away and go investing larger amounts, as they might be risky. Some ELSS offer small and mid-capital stocks, so investing in small doses is better.

Unit-linked Insurance Plans (ULIPs)

Thinking of covering for your life and other assets too? Then choose ULIP - a tax-free haven, as they provide the flexibility to switch from equity to debt (or vice versa).

The best part? It provides no tax on returns, too. This is incredibly useful for those who need a one-stop-shop for financial needs.

ULIPs are always recommended if you have the cash to spare that can be locked up long-term investment; else, you might lose liquidity.

Also, the charges levied on ULIPs are evenly spread across the entire lock-in period of 5 years. It helps ensure that insurers don't pay high front expenses.

National Pension Scheme (NPS)

Are you a teenager or adult thinking about investing in pension schemes? It doesn't matter! Whether your age is 19 or 57, anyone can open an account in NPS.

The minimum contribution is 1000 INR with no maximum limit. Though it has a lock-in period up to your retirement, you can withdraw prematurely if your total capital gathered is less than or equals Rs. 2.5 Lakhs.

Younger investor? No worries, as you can allocate up to 70% towards equities. What's more, the entire 60% amount that you withdraw when you retire is now tax-free.

Apart from this, you also get an additional Rs. 50000 deduction under Sec 80CCD (1B) apart from the 1.5 Lakhs deduction.

And don't get angry with your boss, because if they put 10% of your basic salary in NPS, it is exempted from tax!

Sukanya Samriddhi Yojana (SSY)

Every parent wants to create a better future for their children. SSY gives that freedom to parents, grandparents, or any legal guardian of a 10-year-old girl child.

And you only have to contribute a meagre amount of Rs. 250 as the minimum amount. The maximum you can go is up to 1.5 Lakhs.

While any parent can open an SSY account, only one parent's claims are exempted under Sec 80C.

SSY is Exempt-Exempt-Exempt (EEE) – wherein investment, maturity, and interest benefits are exempted from tax. 

Also, you are free to withdraw 50% of the accumulated amount once the daughters reach 18 years. The remaining, you can withdraw once they are 21 years.

But you can open accounts only for two daughters. And the combined amount shouldn't exceed 1.5 Lakhs in a year.

With a current interest rate of 7.6%, this is even better than PPF. The interest links to Govt yield bonds but remained unchanged for more than two years. 

Here's the sweet part for every daddy's princess – the account comes under their name. Once the amount reaches maturity, they can use it for education and marriage.

Public Provident Fund (PPF)

Any Indian citizen can open a PPF account, either for themselves or on behalf of a minor. You can open only one PPF account. Also, it shouldn't be a joint account.

This is another EEE scheme, with an investment amount as low as Rs. 500! It has a longer lock-in period of 15 years, but it can be extended in separate 5-year blocks once matured.

It currently has an average interest rate of 7.1%, and the interest rates are also not to be affected by rising Govt. yield bonds.

Since it's a small saving scheme, being tax-free, you can never go wrong with investing in PPFs.

It ticks off all the safe, flexible, and taxable points. You can open an account anywhere from a post office, public sector banks, and even private banks.

National Savings Certificate (NSC)

NSC is for all the eligible Indian account holders - individuals, a group of 3 individuals, and guardians of a minor or a minor above ten years.

And it has a brief five-year lock-in period. Although the interest rates are slightly lower than PF, they're also updated quarterly.

You can start investing by sparing only a single Rs. 100 notes from your wallet.

The only downside? The earnings on interest are taxable. So, suppose you bought Rs. 50000 in NSC in 2021, you would earn Rs 3,400 as interest a year later, which you can claim as tax-deduction for 2021-22.

Next year, you would earn Rs. 3700 interest that you can claim in 2022-23.

The biggest plus point is assured returns with a sovereign guarantee. Unlike insurance plans, you are not stuck with it for multiple years.

The Bottom Line: How Can You Benefit by Investing in These Options?

Investing is like life; you always find a way to learn if you are smart. So, keep in mind your financial goals before putting money in any of these schemes.

Don't delay your tax plans until the last quarter to make the situation messy. Plan your investments at the beginning of a year, as your assets have much more potential to multiply over time. Here's what you can try:

  • Keep a check on your expenses towards loans, fees, and premiums
  • If the costs come within 1.5 Lakhs, you don't have to invest the entire amount
  • Then, as per your risk profile, choose one of the investing options that suit you best.

Making a financial investment under the above schemes is a serious commitment, most of which requires having the patience to see your money grow for years before making a fortune. 

However, suppose this sounds like too much work. In that case, you can always experiment with investments that have shorter timelines, less risks involved, and bountiful returns in a couple of years - aka digital investments.

With the digital world increasingly evolving, various digital assets offer considerable returns.

If you are looking to invest in some of these digital assets, consider virtual Gold. If you download the Jar app, it takes only 45 seconds to start your digital investment journey!

Have more questions? These FAQs can be of more help.

1. What is section 80C of the IT Act, 1961?

The IT department offers benefits while investing in schemes like PPF, ELSS, ULIP, and others, under Sec 80C, up to Rs. 1.5 Lakhs.

2. Can you claim benefits of more than Rs. 1.5 Lakhs?

No, Rs. 1.5 Lakhs is the maximum deduction combining all suitable options.

3. Which investment plans are tax-free?

Tax-free investments include SSY, PPF, NPS, and EPF.

4. How many tax-free investment options can I have?

There is no limit on the tax-free investment types, but there is a limit on the deductions.

5. How can I pay less tax on higher incomes?

You can save taxes by choosing tax-free investments and paying less on high income.