What are the best tax saving investment options u/s 80C in India for salaries, entrepreneurs, and the elderly? With 2020 around the corner, the race to find the best way to save tax is heating up.
While some people are planning their extravagant new year’s eve, others have already started exploring best tax saving investment options under Section 80C in 2019-20 to effectively manage their personal finance.
However, not everyone ends up finding the best investment options due to limited knowledge and understanding of the market.
Best Tax Saving Investment Options Under 80C
Looking at the current market volatility and economic slowdown, many people are either dropping the plan to start a new investment or end up investing in tax-saving options with low returns.
But there is more.
What are the best investment options in FY 2019-20 in India to save on income tax under section 80C for salaried individuals, small business owners, and senior citizens? What are the best investment plans in 2019? Let’s find out.
The following are 11 best tax saving investment options under section 80C in FY 2019-20
Table of Contents
- Equity Linked Savings Scheme(ELSS)
- Public Provident Fund(PPF)
- Sukanya Samriddhi Account(SSA)
- Tax Saver Fixed Deposit
- Senior Citizen Savings Scheme(SCSS)
- Voluntary Provident Fund(VPF)
- National Pension Scheme(NPS)
- National Savings Certificate (NSC)
- Unit Linked Investment Plan (ULIP)
- Term Insurance
- Pension Funds
1. Equity Linked Savings Scheme (ELSS)
Equity-linked savings scheme is just like any other mutual funds scheme but provides tax benefit up to Rs. 1.5 lakh under section 80c of the Income Tax Act, 1961.
As the returns on ELSS like other mutual funds are not fixed and guaranteed, you are likely to gain returns subject to an interest rate ranging from 12% to 15% by investing in ELSS for a time frame of 5 to 8 years.
Besides, tax saving mutual funds have the lowest lock-in period. i.e. 3 years.
The best part is that investors can choose the dividend option and get paid regularly even during the lock-in period, which is completely tax-free. And, if you cannot invest a lump sum, you can start with as minimum Rs. 500 per month through SIP and reap tax benefits under section 80C.
Remember, each investment made in a SIP is a separate investment with a lock-in period of 3 years applied separately.
For example, if you start a SIP in January 2019 with the lock-in period of 3 years, it will mature in December 2021. Similarly, the payment made in February 2019 will mature in February 2021, and the like.
This makes ELSS one of the best tax saving investment options under 80C in 2019-20.
2. Public Provident Fund (PPF)
While the PPF interest rate has been falling in the last few years, the Ministry of Finance of India has started giving up a push to this long-term investment scheme in the last two quarters.
As the scheme is backed by the government of India, it is one of the best investment options under 80C for salaried individuals with the benefit of tax saving under section 80C of the Income Tax Act, 1961.
For the first quarter of 2019 (April to June 2019) the PPF interest rate was 8% per annum.
The best part here is PPF investment, interest, and maturity, are tax-free. However, investment has a lock-in period of 15 years.
The maximum amount you can invest under section 80C is 1.5 lakh; the same is applicable to a PPF investment. This also means that you cannot invest more than 1.5 lakh in your PPF account in a year.
The maximum number of transactions allowed in a PPF account is 12 in a financial year.
You can also avail of a loan on your PPF account starting from the 3rd financial year to the 5th financial year. The interest rate applicable is 2% per annum over and above the interest paid.
If you are a non-resident Indian (NRI), you are not eligible to open a PPF account subject to the NRI PPF rules of February 2018. However, an existing NRI PPF account can be continued with the same interest rate as for other Indians.
The minimum and maximum investment amount in a PPF account is Rs. 500 and Rs. 1,50,000, respectively.
Although the interest rate on a PPF account is compounded annually, you should deposit before the 5th of a month to earn the interest for the remaining period of the month.
Also Read: 3 Best Savings Schemes In India
3. Sukanya Samriddhi Account (SSA)
Sukanya Samriddhi Account is backed by the government of India as a savings scheme targeted at the parents of a girl child. Being one of the best investment options under 80C, the scheme is to encourage such parents to build a corpus for the future education and marriage expenses of the girl child.
The current interest rate offered by Sukanya Samriddhi Account is 8.5 % per annum along with tax benefits.
Anyone who is a parent of a girl child can open awesome this account at any post office or any branch of the authorized commercial banks in India.
The account can be opened anytime after a girl child is born and until she turns 10 years old by any of the parents/guardians. The limit of such accounts is 1 per girl child.
The account can be opened with a minimum of Rs. 250 and the deposits can be made in multiples of Rs. 100 thereafter. The minimum and maximum deposit amount of rupees 250 and Rs 1,50,000 per annum.
A fine of Rs. 50 will be imposed on the account if the minimum amount of Rs. 250 is not deposited in a year.
The girl child can operate this account as soon as she turns 10 and is allowed to withdraw 50% of the existing amount at the age of 18 years for the sole purpose of higher education.
The maturity period of the account is 21 years starting from the day of opening it. The deposits can be made until the completion of 14 years and the remaining 7 years will be to earn the interest applicable.
4. Tax Saver Fixed Deposit (FD)
Investing in tax saver fixed deposit is a traditional way of saving money and availing of income tax deduction under section 80C.
The interest rate applicable to a fixed deposit account is strictly subject to the bank or post office where you open the account. The latest rates applicable to FD are between 4.5 % to 7.5 % per annum.
On the other hand, a 5-year fixed deposit at a post office offers an annual interest rate of 8%.
Since only the amount deposited in a fixed deposit account get you the tax rebate as applicable, both the interest earned on FD and maturity amount are taxable.
5. Senior Citizen Savings Scheme (SCSS)
This is another tax saving investment option for senior citizens in India with assured returns. The amount deposited as the principal is safe, as the scheme is backed by the Indian government.
Any individual aged 60 or above is allowed to open an account under senior citizen saving scheme for a tax-saving purpose under section 80C.
The highest interest rate applicable to such an account is 8.7% per annum with a maturity period of 5 years.
This is one of the best investment options for senior citizens, as the scheme entitles the investor to get paid the interest at the end of every quarter.
As SCSS is one of the best investment options under section 80C, the maximum amount you can invest in this account is Rs. 50 lakh. Just like every other fixed deposit scheme, the interest earned under this scheme is also taxable.
The scheme comes with a stipulation associated with premature closure of the account. This says that 1.5% of the deposited amount will be levied as closing charges after 1 year of opening the account. The closing charge applicable after a period of 2 years is 1% of the deposited amount.
Voluntary Provident Fund or VPF is just like the Employee Provident Fund (EPF) account but in addition to the fixed 12% monthly contribution.
While there is no limit on how much you can monthly contribute to your VPF, the maximum amount that can be contributed is 100% of the Basic + DA.
The amount so invested in VPF is exempted from income tax under section 80C. The interest rate applicable to VPF contributions is similar to EPF, which was 8.5% per annum in the fiscal year 2017-18 (to be calculated for 2018-19 in February 2019).
The lock-in period applicable to VPF is the same as EPF.
You can make a partial withdrawal during their unemployment over a period of 2 months. Such a partial withdrawal is subject to taxation in case the account is less than 5 years old. Maturity returns, on the other hand, are completely tax-free.
7. National Pension Scheme (NPS)
National Pension Scheme previously known as the New Pension Scheme is a tax-saving investment option under section 80C, which is open to every Indian citizen.
As the amount you contribute to an NPS account is invested in equities and debts, the pension amount depends upon how these instruments perform.
You can open an NPS account if your age is between 18 and 65 years. Although the NPS account matures as soon as you turn 60, you can still extend it for another 10 years.
NPS allows partial withdrawal up to 25% of your total contributions after 3 years of account opening for a purpose like a serious illness, buying a home, children’s education, etc.
- Tier 1 NPS Account
- Tier 2 NPS Account
Tier 1 NPS accounts allow you to withdraw 40% of the corpus after the age of 60, which is tax-free. Another 40% of the total corpus should be used to purchase an annuity, whereas the remaining 20% can either be withdrawn (subject to taxation) or be used to purchase an annuity.
In contrast, tier 2 NPS accounts are nothing but voluntary retirement-cum-savings accounts, which you can open only if you have a Tier 1 account. The best part is that you can withdraw or invest funds as per your own convenience without worrying about any tax deductions.
Based on a recent announcement by the finance minister of India, Mr. Arun Jaitley, all Tier 2 NPS accounts held by central government employees will also be eligible for tax benefit under section 80C subject to a lock-in period of 3 years.
8. National Savings Certificate (NSC)
National Savings Certificate can only be issued by post offices across India, all public sector banks, and top 3 private sector banks across India. The investments made in NSC are subject to tax exemption under section 80C.
As the investments are backed by the government of India, NSC is considered one of the safest investments you can make.
You can make an NSCs investment for a period of 5 years. 10-year NSCs have been discontinued.
You can start an NSC investment from Rs. 500 and can go further in multiples of Rs. 1,000, 5,000 and 10,000. There is no upper limit applicable to the investment amount.
As per Q3 2017-18, the interest rate applicable to a 5-year NSC investment is 8% per annum. However, this rate is subject to change, as it is controlled by the Ministry of Finance.
Here, the interest is compounded half-yearly and the same is taxable. This also means that you have to show the interest so received as a source of income while filing your ITR for the underlying fiscal year.
9. Unit Linked Investment Plan (ULIP)
ULIP is an investment instrument that offers the combined benefits of investment and insurance. Investors or policyholders can pay the premiums on a monthly basis.
The premium you pay for a ULIP is so divided into two parts that one part goes into offering life insurance coverage to you while the other part goes for investment in different funds.
Since ULIPs offer the death benefit, the nominee is entitled to receive the sum assured or the current fund value, whichever is higher, in case of your demise.
For example, Mr. Sharma purchases a ULIP with an annual premium of Rs. 50,000 for a policy term of 10 years. The insurance company offers him insurance coverage 10-times the annual premium, which in this case is Rs. 5,00,000.
In case Mr. Sharma dies after paying 3 premium installments, i.e. 1,50,000 and the current fund value is Rs. 2,00,000, the insurance company is liable to pay the entire sum insured of 5,00,000 to the nominee.
On the other hand, if Mr. Sharma dies after paying 8 premium installments, i.e. Rs. 4,00,000 and the current fund value is Rs. 5,20,000, the insurance company is liable to pay Rs. 5,20,000 to the nominee, which is higher of both the sum assured and the current fund value.
10. Term Insurance
A term insurance policy is one of the best ways you can provide financial protection to your family when you are no longer with them to financially protect them.
Term insurance comes with the death benefit only, which means that the nominee is entitled to receive the entire sum assured in case of your demise (death) during the policy term.
Note: A term insurance policy is specially designed for the sole purpose of risk coverage and not for building funds.
I am including term insurance in the best investment options in 2019-20 because the financial protection of your family is your utmost concerned, as you will not be with them to support their future finances.
Remember that a term insurance policy has no maturity benefit at all. This also means that you are not going to get any monetary benefit, in case you outlive the policy term whatsoever.
So, if you have been thinking about financially protecting your family’s future it is the right time to buy a term insurance plan and save on income tax under section 80C.
11. Pension Funds
As the name suggests, pension funds are to provide regular income after retirement. These plans are provided with two categories:
- Deferred annuity plans
- Immediate annuity plans
Deferred annuity plans require you to invest until your retirement. Once you retire, you can simply withdraw up to 60% of the accumulated corpus while the remaining 40% remains invested in an annuity fund that will give you a regular monthly pension.
On the other hand, immediate annuity plans require you to invest the entire sum of money in one go and you shall start receiving your monthly pension from the next month itself.
This option is typically chosen by or best for those who have an accumulated retirement corpus and want to receive a monthly pension while still staying invested.
Conclusion: It’s Your Turn Now
These 11 investment options will help you avail tax benefit up to Rs 1,50,000 under section 80C of the Income Tax Act, 1961, with an additional benefit of Rs. 50,000 under section 80CCD (1B) subject to NPS in the fiscal year 2019-20.
You may not be able to invest in all of these investment options, but you can choose the best one(s) as per your income tax liability and risk appetite. So, these are the best tax saving investment options u/s 80C in India. Which of these investment options are you going to choose to invest in 2019-20? You don’t have much time to plan your investments.
Do let me know in the comment section below. Also, do share with me if you think there is/are a better investment option(s) that I have missed.