Top 10 Income Tax Saving Schemes – Maximizing Your Savings & Reducing Tax Liability

Each of us struggles with the issue of how to plan investments or how to save taxes. Which is why we have compiled a great guidebook over the best tax saving schemes and strategies. So, Let’s get into it!

Basically, ULIP, ELSS,  NPS,  Senior Citizen Savings Scheme, National Savings Certificate, EPF are some of the best income taxes that I highly recommend to everyone looking for safe and beneficial investment.

Want to know further details and in-depth analysis of these income taxes? Stay with me and I’ll show you how and where should you have income tax saving schemes.

List of top 10 lesser-known income tax saving schemes – Let’s Explore Them One By One!

1. Unit Linked Insurance Plan (ULIP)

Unit-linked insurance plan is a secure and safe insurance policy. It offers dual benefits of life insurance coverage and market-linked returns. This policy is best suited for those who have long-term financial planning.

The Income Tax Act of 1961’s Section 80C allows policyholders to deduct up to 1.5 lakhs from their taxable income on any investment instrument in a financial year. 

Additionally, according to Section 10, income on the fulfillment of policy is tax-free.

The income is tax-free if the premium is less than 10% of the amount assured.

The interest rate in this policy is 2.25% to 9.00% and the most common investment tenure is 10 to 20 years.

2. Equity Linked Saving Schemes (ELSS)

ELSS is also known as a Tax-saving MF. These are mutual funds that are associated with equity. The fund has the shortest lock-in period of 3 years among all the investment products.

Under Section 80C of the Income Tax Act, investments in ELSS funds are qualified for a deduction of up to Rs. 1.5 lakh. 

ELSS funds offer the dual benefits of tax savings and capital appreciation. Therefore, Investors consider it to be one of the best tax-saving solutions.

Basically, ELSS funds offer higher returns in less time. By investing in the MF or ELSS funds that are highly recommended, you can save up to Rs 46,800* in taxes.

3. National Pension Scheme ( NPS )

Pension plans that protect your financial future include pension funds, NPS, immediate annuity plans, and deferred annuity plans. These are investments that offer tax advantages and a guaranteed lifetime income during retirement.

There are two types of NPS accounts: Tier 1 and Tier 2.

The tier-1 account has limitations until the subscriber turns 60.  Under sections 80CCD(1) and 80CCD(1B), the subscriber’s tier-1 contributions are tax deductible. 

Customers may withdraw money at any time from their Tier-2 accounts because they are optional. Though they are not tax deductible, contributions to tier-2 accounts are not.

A person may contribute to NPS and deduct up to Rs. 1.5 lakh under Section 80CCD.

4.  Senior Citizen Savings Scheme

This savings scheme is available for senior citizens (above 60) who are residents of India. 

It now offers an interest rate of 7.4%, which is higher than that of comparable government-backed schemes.

The scheme’s deposits mature five years after being made. The depositors also have the option of extending the maturity period by an additional three years.

5. National Savings Certificate

A fixed-income investment program called the “National Savings Certificate” targets low- and middle-income investors with the hope that they will invest and profit handsomely. 

It’s viewed as a low-risk investment.

Some of the NSC’s tax-saving advantages include the following:

• 7% annual interest as a return that is certain.
• You may claim a tax benefit up to Rs. 1.5 lakh under Section 80C.
• You can put as little as $1,000 (or multiples of $100) into an investment. You are free to increase your investment as needed.

6. Treatment of certain disorders as per Section 80DDB

A taxpayer is qualified for a deduction under section 80DDB if they have a disease like cancer or a neurological disease like dementia, motor neuron disease, Parkinson’s disease, etc.

The significant expenses incurred in treating each of these conditions are allowable as a deduction under Section 80DDB.

7. Employee provident fund (EPF)

The Employees’ Provident Fund (EPF) is a well-known savings program that was established by the EPF and is administered by the Indian government. 

The goal of the savings program is to motivate the salaried class to save money in order to build a sizeable retirement corpus.

8. Tax-savings fixed deposit

Fixed deposits are among the safest ways to reduce taxes. It is less risky than equity investments in terms of risk and returns.

Interest rates are set by banks and are influenced by several factors. 

The following is a list of specific characteristics of a fixed deposit that saves taxes:

• Investments in tax-saving fixed deposits are deductible from taxable income under Section 80C.
• a minimum 5-year lock-in term
• Seniors have the benefit of higher investment interest rates.
• When calculating their taxable income in a joint account, the principal account holder may be entitled to a tax deduction.

9. School Tuition Fees:

Section 80C of the Income Tax Act of 1961 allows for a deduction for the cost of children’s school expenses. Along with other investments like PPF, NSC, ELSS, etc., this tax-saving alternative is accessible under Section 80C. 

A deduction of up to Rs. 1.5 lakh may be made for tuition fees paid to any recognized university, college, school, or other educational facilities.

ALso Read: HOW TO INVEST IN STOCKS FOR BEGINNERS?

10. Donations made to charitable organizations:

The taxpayer is entitled to a tax deduction for any money given to a recognized charity under Section 80G. 

These organizations should receive donations via check or online transfer. The provision prohibits the deductibility of cash transfers worth more than Rs 2,000.

Frequently Asked Questions:

When can Indians save the most money on taxes?

Indians can save the most money on taxes by utilizing tax-saving investments and deductions before the end of the financial year, typically before March 31st.

Can I withdraw money from tax-saving schemes before the lock-in period expires?

Most tax-saving schemes come with a lock-in period, during which premature withdrawals are not allowed. However, some schemes offer partial withdrawals or allow withdrawals under specific circumstances. It is advisable to check the terms and conditions of every scheme

Can I claim tax deductions on contributions made to multiple tax-saving schemes?

Yes, you can claim tax deductions on contributions made to multiple tax-saving schemes. Each scheme, such as PPF, ELSS, NPS, and others, falls under different sections of the Income Tax Act. 

Also Read: WHAT ARE MUTUAL FUNDS AND THEIR BENEFITS?

Final verdicts:

Summing up this article, there are numerous income tax saving schemes, but above mentioned are the best and lesser-known.

These are the Unit Linked Insurance Plan, Equity Linked Saving Schemes, National Pension Scheme, Senior Citizen Savings Scheme, National Savings Certificate, Treatment of Certain Disorders as Per Section 80DDB, Employee Provident Fund, Tax-savings Fixed Deposit, School Tuition Fees, and Donations made to Charitable Organizations.

So, now start to find a suitable savings scheme for yourself and enjoy your savings.