Come year end, and taxpayers get all worked up to invest in the right tax-saving investment for their portfolio. Why, you may wonder. Well, all tax-saving investments offer a tax deduction of up to Rs 1.5 lac per annum under Section 80C of the Income Tax Act, 1961. An investor can save up to Rs 46,800 each year by investing in tax-saving investments under Section 80C, provided that they belong to the highest tax slab. However, this habit of procrastinating things often comes at a cost. The cost is that in a hurry to choose a tax-saving investment for that particular year, investors often make an ill-informed decision and end up investing in investment options that might not be suitable for their investment portfolio. In this article, we will understand different tax saving investments that you can consider adding to your investment portfolio.
Equity Linked Savings Scheme (ELSS)
As mandated by the Securities and Exchange Board of India, ELSS funds are a type of equity funds that invest at least 80% of their assets in equity-linked investments. Note that investments in ELSS mutual funds are associated with a mandatory lock0in period of 3 years. This also happens to be one of the lowest lock-in tenures when compared to other tax-saving investments. As ELSS mutual funds invest majorly in equities, these mutual funds have a huge potential to generate significant returns over long run. Thus, ELSS tax saver mutual funds offer investors with dual benefits of capital appreciation and tax saving benefits.
Unit Linked Insurance Plan (ULIP)
As the name suggests, ULIPs offer the combined benefits of a life insurance policy and an investment option in a single fund. Basically, when you invest in ULIPs, a smart part is invested towards securing your life and remaining is allotted towards different types of investment basis your financial goals, risk profile, and investment horizon. Investors investing in ULIPs have the flexibility to switch between different types of funds around three to four times in a particular year.
Senior Citizen Savings Scheme (SCSS)
SCSS is a type of savings scheme which is backed by the government of India. Any Indian citizen can invest in SCSS provided that the investor is at least 60 years of age. The interest rates earned on these savings scheme is declared by the Indian government before the investor purchases these schemes. As compared to other savings schemes in India, SCSS offer comparatively higher interest rates to investors. The maturity tenure of senior citizen savings scheme is 5 years. However, you can choose to extend it further by three years.
These were some of the tax-saving investments that you can choose to add to your investment portfolio. Even though tax-saving investments are a great way to reduce one’s taxable income, one should not invest in these investment options with the sole purpose of saving tax. The tax-saving investments that you choose to invest in must align with your financial goals, risk profile, and investment horizon. Happy investing!