Are you looking for smart ways to save income tax in India? Well, if you want to enjoy exemptions under the Income Tax Act and legally reduce your tax burden, you’re in the right place. The good news is that there are several government-backed schemes specially designed to help individuals like you save money while securing your financial future.
Income Tax Saving in These 5 Schemes
| Key Information | Details |
|---|---|
| Topic | Income Tax Saving Schemes in India |
| Top 5 Schemes | ELSS, PPF, NPS, Sukanya Samriddhi Yojana, NSC |
| Maximum Tax Deduction | Up to ₹1.5 lakh under Section 80C + ₹50,000 under Section 80CCD(1B) |
| Minimum Lock-in Period | 3 years (ELSS) |
| Best for | Salaried individuals, Parents, Long-term investors, Professionals |
Investing in these 5 tax-saving schemes is not just about saving taxes—it’s about building a secure, financially independent future. Whether you’re a salaried professional, a parent planning for your child, or preparing for retirement, there’s a tax-saving option tailored for you. Make informed decisions, stay compliant, and enjoy the double benefit of tax savings + wealth creation.
Why Should You Invest in Tax Saving Schemes?
Before diving into the details, let’s understand why income tax saving schemes are crucial:
- Reduce Taxable Income: By investing in eligible instruments, you can claim deductions and reduce your total taxable income.
- Grow Wealth: Most schemes offer competitive returns, beating inflation.
- Long-term Security: Many options like PPF and NPS are geared toward retirement planning.
- Encouraged by the Government: Backed by government policies ensuring safety and transparency.
see also: Post Office or Bank, Where to Do Tax-saving FD?
Top 5 Schemes to Get Income Tax Exemption
Let’s break down each scheme in a simple, easy-to-understand way:
Equity-Linked Savings Scheme (ELSS)
What is ELSS?
ELSS is a type of mutual fund where your money is invested in the stock market, particularly equity shares. It’s popular because it has the shortest lock-in period of just 3 years, and you can claim tax deductions under Section 80C.
Key Benefits:
- Tax Deduction: Up to ₹1.5 lakh under Section 80C.
- Potential High Returns: Historically, ELSS funds offer average returns between 12% to 15% over the long term.
- Short Lock-in: Only 3 years, compared to other schemes.
Example: If you invest ₹1,50,000 in ELSS, you could save up to ₹46,800 in taxes (assuming you’re in the 30% slab).
Pro Tip: Invest via SIP (Systematic Investment Plan) monthly to avoid market timing risks.
Public Provident Fund (PPF)
What is PPF?
PPF is a government-backed savings scheme with a lock-in period of 15 years. It is one of the safest and most preferred options, especially for risk-averse investors.
Key Benefits:
- Tax Deduction: Up to ₹1.5 lakh under Section 80C.
- Tax-Free Returns: Current interest rate is 7.1% (Q1 FY 2024-25), completely tax-free.
- Loan Facility: You can take a loan against your PPF balance.
Example: If you invest ₹1 lakh annually for 15 years, your total maturity amount could be over ₹27 lakh, 100% tax-free!
National Pension System (NPS)
What is NPS?
NPS is a pension-focused investment scheme, perfect for long-term retirement planning. It invests in a mix of equity, government bonds, and corporate bonds.
Key Benefits:
- Tax Deduction: Up to ₹1.5 lakh under Section 80C + ₹50,000 extra under Section 80CCD(1B).
- Partial Tax-Free Maturity: 60% of the corpus is tax-free.
- Flexible Investment: Choose asset allocation based on your risk profile.
Example: Invest ₹5,000/month till retirement, and you could build a corpus of ₹1 crore+, with significant tax benefits every year.
Sukanya Samriddhi Yojana (SSY)
What is SSY?
Launched to support the Girl Child’s future, SSY offers one of the highest interest rates, currently 8.2% per annum (FY 2024-25), and tax benefits under Section 80C.
Key Benefits:
- Tax Deduction: Up to ₹1.5 lakh under Section 80C.
- Tax-Free Interest & Maturity: Both are completely exempt.
- Tenure: 21 years from account opening or until the girl turns 18 and gets married.
Example: Invest ₹1 lakh annually, and by the time your daughter turns 21, she’ll have over ₹40 lakh (tax-free), ensuring a secure future.
National Savings Certificates (NSC)
What is NSC?
NSC is a fixed-income government scheme ideal for conservative investors. It has a 5-year lock-in period and offers guaranteed returns.
Key Benefits:
- Tax Deduction: Up to ₹1.5 lakh under Section 80C.
- Interest Rate: Currently at 7.7% per annum, compounded annually.
- Low-Risk Investment: Backed by the Government of India.
Example: Invest ₹1.5 lakh, and after 5 years, you’ll receive approximately ₹2.19 lakh, and the interest accrued in the first 4 years is reinvested, qualifying for further deductions.
How Much Tax Can You Save?
Here’s a quick breakdown:
| Scheme | Max Deduction | Interest/Return Rate | Lock-in Period |
|---|---|---|---|
| ELSS | ₹1.5 lakh (Sec 80C) | 12%-15% (market-linked) | 3 years |
| PPF | ₹1.5 lakh (Sec 80C) | 7.1% (tax-free) | 15 years |
| NPS | ₹2 lakh (Sec 80C + 80CCD(1B)) | 9%-12% (market-linked) | Till retirement |
| SSY | ₹1.5 lakh (Sec 80C) | 8.2% (tax-free) | 21 years or until marriage |
| NSC | ₹1.5 lakh (Sec 80C) | 7.7% | 5 years |
How to Choose the Best Scheme?
Choosing the right scheme depends on:
- Your Financial Goal: Long-term (NPS, PPF), short-to-medium term (ELSS, NSC).
- Risk Appetite: Risk-takers can choose ELSS or NPS equity option, while risk-averse can opt for PPF or NSC.
- Family Considerations: Parents with a girl child should consider SSY.
- Liquidity Needs: ELSS has the shortest lock-in.
see also: How to Make a Profit of ₹ 3 Lakh by Saving ₹ 70 Per Day in PPF Scheme
Income Tax Saving in These 5 Schemes FAQs
1. Can I invest in more than one tax-saving scheme?
Yes! You can invest in multiple schemes. However, the maximum deduction allowed under Section 80C is ₹1.5 lakh annually.
2. Is the interest from these schemes taxable?
- PPF & SSY: Interest is tax-free.
- ELSS: Returns are taxable as LTCG (Long Term Capital Gains) above ₹1 lakh at 10%.
- NPS: Partial tax-free withdrawal.
- NSC: Interest is taxable, but reinvested interest qualifies for 80C deductions.
3. Which scheme gives the highest return?
Historically, ELSS has provided the highest return, but it is market-linked and carries some risk.
4. What is the safest scheme?
PPF and NSC are considered the safest because they are backed by the Government of India.
