Tax Saving Investments are the investments that are eligible for claiming tax deductions of up to Rs.1.5 lacs in a financial year under section 80C of Income Tax Act,1961. Along with the investments, there are several payments that are also allowed for claiming tax deductions by the investors.
The tax deduction of Rs.1.5 lacs in a financial year can include all the eligible Investments & Payments made by the investor but only to the extent of Rs.1.5 lacs. If the total amount exceeds the maximum limit then tax deduction would only be eligible up to the 1.5 lacs amount and the amount above will be taxable as per the income tax slab rate applicable to the investors.
What are the best tax-saving investments for 2020?
1. Post Office Saving Schemes: Post Office Saving Schemes are the savings schemes offered by the IndiaPost, a government-backed postal services organization. The schemes offered by the IndiaPost is accessible to almost everyone in India due to its wide network of over 1.55 lac post office branches.
Some of the schemes offered by IndiaPost provides the taxation benefit to the depositor or investors by the way of allowing them to claim tax deductions of up to Rs.1.5 lacs under section 80C of IT Act,1961. The tax saving schemes are:
- National Savings Certificate (NSC)
- Sukanya Samriddhi Yojana (SSY)
- Senior Citizens Saving Scheme (SCSS)
- Post Office 5 Year Time Deposit
- Public Provident Fund (PPF)
2. Equity Linked Saving Schemes: or Tax-saving Mutual funds are the mutual funds’ investments in which are eligible for claiming tax deductions of up to Rs.1.5 lacs under section 80c. These schemes have the lowest lock-in period of 3 years among all investments eligible for tax savings. Also, Investments in ELSS funds have the potential to provide the highest returns among all investment options due to the exposures in high rewarding equity stocks.
ELSS funds carry high risk and therefore investments in these funds are suitable for investors who have high-risk appetite along with a long investment horizon so as to earn good returns on investment.
Investors can expect returns of around 12% on investments made for long horizons.
3. Bank Fixed Deposit: These are the time deposits with the banks with a deposit tenure of 5 years. Investments in Bank FDs are also one of the safest options because there is very low risk associated with deposits in the banks.
The 5-Year Tax-saving FDs offer returns of 6-7%p.a.
Investors can look into investing in any mix of the above investments as per their risk appetite & financial requirements to claim tax deductions.
