Make your money work: Investment options for tax savings!

A penny saved is a penny earned. And one of the smartest ways in which you can save your hard-earned money is by making investments that offer tax benefits.

Tax-saving investments, if done wisely, not only help you build a financial cushion for tough times but also ensure that your money is utilised wisely and in ways you need it the most. To grasp the idea of tax savings, it's important to first understand what Income tax slabs are.

• Table of contents

1. What are Income Tax Slabs?
2. Equity linked Savings Scheme (ELSS)
3. Public Provident Fund (PPF)
4. Senior Citizen Savings Scheme (SCSS)
5. Sukanya Samriddhi Yojna (SSY)
6. How to save taxes if you have an income of Rs. 12 lakh per annum?

What are Income Tax Slabs?

Income tax slabs are designed to categorise income earners in India into different taxpayer categories. This means that your tax liability increases as your income increases.
However, income tax slabs are subject to change with every Union Budget presented at the end of the financial year.

In addition, income tax is imposed under three different age categories:

1. Individuals who are less than 60 years of age (both residents and non-residents)
2. Senior Citizens between 60 to 80 years of age
3. Super Senior Citizens more than 80 years of age

So, what are some good tax saving options?

Tax-saving is a crucial strategy for investors to safeguard their total income from erosion. There are several investment options that offer this advantage, resulting in a notable boost to one's investment portfolio.

Let us explore some of the tax-saving investment options that can effectively reduce your tax liability:

Equity Linked Savings Scheme (ELSS)

• Investing in ELSS mutual funds can help you save taxes as well as accumulate wealth over time.
• ELSS mutual funds come with a lock-in period of 3 years, and it is considered as one of the most effective ways to save on taxes under section 80C.
• It has the potential for long term growth through market participation.
• Another major advantage of investing in ELSS mutual funds is that the principal amount invested in ELSS is exempt from taxation up to Rs. 1.5 lakh.
• If the capital gains arising from ELSS funds is below Rs.1 lakh, then the gains are not subjected to long-term capital gains tax.
• ELSS mutual funds offer relatively higher liquidity compared to other tax-saving securities.

Public Provident Fund (PPF)

• Sponsored by the Government of India, PPF is considered one of the best tax-saving instruments under Section 80C.
• Comes with a mandatory lock-in period of 15 years, which may affect investor liquidity requirements.
• Offers a fixed return instrument with interest rate declared by the government every quarter and remains fixed for the given period.
• Maximum investment limit of Rs.1.5 lakh per financial year.
• Entire investment amount is exempt from taxation, making it a popular tax-saving option.
• Any interest earned on the investment amount is also not considered for tax calculations.

Senior Citizen Savings Scheme (SCSS)

• SCSS is a tax-saving investment under Section 80C, allowing for a deduction of up to Rs. 1.5 lakh on the investment amount.
• Eligibility criteria for SCSS are more rigid, limited to individuals aged 60 years and above, above the age of 55 years availing voluntary retirement, and above the age of 50 years employed in the defence sector of India.
• Maximum investment limit in SCSS policy is Rs. 15 lakh.
• Interest rate payable is determined by the Government of India, providing stable returns.

Sukanya Samriddhi Yojna (SSY)

• Sukanya Samriddhi Yojna (SSY) is a popular tax-saving option under Section 80C of the Income Tax Act.
• SSY offers benefits of up to Rs. 1.5 lakh per annum.
• Only individuals with daughters who are less than 10 years old can open an SSY account, as it is part of the 'Beti Bachao Beti Padhao' policy.
• SSY offers a higher interest rate than other government-mandated instruments like Public Provident Fund.
• Any investment exceeding Rs.1.5 lakh in a year does not qualify for SSY tax benefits.

How to save taxes if you have an income of Rs. 12 lakh per annum?

In the 2025 budget, the Indian government overhauled the tax slabs under the new regime of the Income Tax Act. As a result, annual incomes of up to Rs. 12 lakh are now effectively tax-free. This will be applicable for the FY 26 tax filing season.

Those who opt for the old regime in FY 25-26 will still be eligible to pay tax if their income is Rs. 12 lakh,

However, they can *reduce their tax burden through the following exemptions, whichever is applicable to them and within specified limits.

*For illustrative purposes only

Savings up to Rs.1,50,000 under Section 80C of the Income Tax Act, 1961.

Additional deduction of Rs.50,000 if you invest in NPS

Medical insurance for self and family (maximum limit varies depending upon age profile of dependent family members)

HRA Component

Deduction on interest on education loan

Deduction on interest on home loan for first-time home buyers

Employer’s contribution to NPS

Leave Travel Allowance

Instead of waiting till the end of the financial year and opting for last-minute ad-hoc investments, it's wiser to begin early in the financial year. This will allow you to carefully plan your investments in alignment with your financial goals and avail maximum tax benefits. By taking a proactive approach, you can reap the benefits of a well-planned and fruitful financial future.

FAQs:

Which scheme is best for tax saving?

The best tax-saving scheme or investment option for you depends on various factors, such as your financial goals, risk tolerance, investment horizon, and individual tax situation.

What are the tax saving schemes?

Tax-saving schemes are investment avenues that allow you to significantly reduce your tax liability. Here's a list:

• Public Provident Fund (PPF)
• Equity-Linked Saving Schemes (ELSS)
• National Pension Scheme (NPS)
• Sukanya Samriddhi Yojana (SSY)
• Tax-saving Fixed Deposits
• Employee Provident Fund (EPF)
• Life Insurance Premiums
• Senior Citizen Savings Scheme (SCSS)

What is an effective strategy to reduce taxable income?

An effective strategy to reduce taxable income in India is to utilize deductions and exemptions available under the Income Tax Act, such as investing in tax-saving schemes, claiming allowable expenses, and utilizing exemptions for specific investments and expenditures. Consulting a qualified tax advisor or financial professional can help in devising an effective tax planning strategy in compliance with Indian tax laws.

How to save tax on Rs.15 lakh annual salary?

Tax slabs are different under the old and new regimes of the Income Tax Act. Under the new regime, tax rates are typically lower for most income brackets, but there are no exemptions (except standard deduction and rebate).

For those who have opted for the old regime, to save tax on a Rs.15 lakh salary in India, you can consider various strategies, such as investing in tax-saving instruments like the Public Provident Fund (PPF), Equity-Linked Savings Schemes (ELSS), National Pension Scheme (NPS), and claiming deductions for allowable expenses like House Rent Allowance (HRA), Medical expenses, and others. It is advisable to seek guidance from a qualified tax advisor for personalized tax planning.

What is the maximum tax deduction I can claim under Section 80C of the Income Tax Act, 1961?

Section 80C of the Income Tax Act, 1961, allows for deductions up to Rs 1.5 lakh for investments in specified instruments like ELSS mutual funds, PPF and others. This can reduce your taxable income, leading to tax savings. However, it is only applicable to those who have opted for the old tax regime.

How does the National Pension Scheme (NPS) help in tax savings?

NPS offers tax benefits under Section 80CCD(1B) of the Income Tax Act, 1961, allowing an additional deduction of up to Rs 50,000 beyond the Rs 1.5 lakh limit of Section 80CE of the Income Tax Act, 1961.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. This document should not be treated as endorsement of the views/opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.