ELSS, PPF: Tax-saving investments to consider before the year-end

Effective tax planning is essential for reducing tax liabilities and enhancing income. The Income Tax Act outlines various deductions for investments, savings, and expenses incurred during a financial

As the financial year draws to a close, individuals and families across India are presented with a crucial opportunity to optimise their tax liabilities. With various investment avenues available under Income Tax Act, you can reduce your taxable income while simultaneously building wealth. From equity-linked schemes to government-backed savings plans, each option offers unique benefits tailored to different financial goals and risk appetites. Let us explore some of the most effective tax-saving investments you should consider before the financial year ends.

 

Key tax-saving investments

 

Equity linked saving scheme (ELSS): ELSS funds are equity funds that invest a major portion of their corpus into equity or equity-related instruments. ELSS funds are also called tax saving schemes.

 

Lock-in period: 3 years

 

Tax benefits: Deduction up to Rs 1.5 lakh under Section 80C; returns are tax-free after the lock-in period.

 

Public Provident Fund (PPF): A long-term savings and investment scheme offered by the government of India. It is a popular option for those looking to save and invest money safely and steadily.

  Lock-in Period: 15 years

  Tax Benefits: Contributions qualify for deductions up to Rs 1.5 lakh under Section 80C14.

  Unit Linked Insurance Plan (ULIP): A combination of insurance and investment, where part of the premium goes towards life cover and the rest is invested in equity or debt funds.

  Lock-in Period: 5 years

 

Tax Benefits: Premiums paid are deductible under Section 80C, and maturity proceeds are tax-free under Section 10(10D).

 

National Pension System (NPS): A retirement savings scheme that encourages individuals to invest regularly in a pension account during their working life.

 

Lock-in Period: Until retirement

 

Tax Benefits: Contributions eligible for deduction under Section 80C up to Rs 1.5 lakh, with an additional Rs 50,000 deduction available under Section 80CCD(1B).

 

National Savings Certificate (NSC): A fixed-income investment scheme offered by the government of India.

 

Lock-in Period: 5 years

  Tax Benefits: Investment qualifies for deductions up to Rs 1.5 lakh under Section 80C; interest earned is added to the principal and is tax-exempt.

 

Senior Citizen Savings Scheme (SCSS): A savings scheme designed for senior citizens aged 60 and above.

 

Lock-in Period: 5 years

 

Tax Benefits: Contributions qualify for deductions under Section 80C.

 

Sukanya Samriddhi Yojana: A government-backed savings scheme aimed at encouraging savings for the education and marriage of a girl child.

 

Eligibility: For accounts opened in the name of a girl child.

 

Lock-in Period: Until the child turns 21 or gets married.

 

Tax Benefits: Deductions up to Rs 1.5 lakh under Section 80C; interest earned is tax-free.

 

Key considerations for tax-saving investments:

 

Always do proactive financial planning rather than last-minute investment decisions.

 

Carefully evaluate investment options.

 

Align investments with your long-term financial goals.

 

Avoid rushed, potentially suboptimal investment choices.