Tax-Saving Schemes

9 Important Tax-Saving Schemes Under The Income Tax Act

Online Legal India LogoBy Online Legal India Published On 08 Dec 2022 Updated On 06 Jan 2023 Category Income Tax

There are several clever strategies to save taxes and maximise your savings. However, for most people, tax preparation is something they put off until later. A better strategy is to begin investing in the early quarters of the fiscal year when there is more time to plan and reap the greatest returns on investment from various tax-saving strategies.

Evaluating elements like safety returns and liquidity is critical when selecting the best tax-saving investing programmes. It is also critical to have a thorough awareness of how the returns will be taxed. If investment returns are taxed, the potential for long-term wealth creation is limited.

All About Section 80C of The Income Tax Act

Before proceeding to the list of the finest tax-saving investment programmes, it is necessary to understand the essential portion of the Online Income Tax Act, namely section 80C. Section 80C of the Income Tax Act governs the majority of tax-saving investment schemes. According to this provision, the investor's investments are entitled to tax exemption up to a maximum of Rs. 1,50,000. ELSS or Equity Linked Saving Scheme, Fixed Deposits, Life Insurance, Public Provident Fund, National Savings Scheme, and Bonds are examples of such investments. There are relatively few investment options that give a tax benefit in addition to this limit. Let's look at the finest tax-saving investments under Section 80C of the Internal Revenue Code.

Important Tax-Saving Schemes Under Section 80C of the IT Act

Despite the fact that there are several tax-saving investment options accessible on the market. People are frequently perplexed as to which strategy is ideal for them. So we've provided a list of some of the top tax-saving schemes u/s 80C of the IT or  Income Tax Act of 1961 to help you pick the best investment option for you based on your tolerance and preferences.

Scheme Return Lock-in Period
ELSS Funds Not Fixed 3 years
National Pension Scheme 9% to 12% Till retirement
Unit Linked Insurance Plan Return vary from plan to plan 5 years
Sukanya Samriddhi Yojana 7.60% 21 years
Public Provident Fund 7.1% currently 15 years
National Savings Certificate 6.80% 5 years
Bank FDs 5.5% to 7.75% 5 years
Senior Citizen Savings Scheme 7.40% 5 years
Insurance Returns vary from plan to plan 3 years

ELSS Mutual Funds

The equity-linked saving scheme (ELSS) is a diversified mutual fund scheme with two distinct features: firstly, the investment capital in the ELSS plan is eligible for tax exemption up to an utmost limit of Rs.1.5 Lakh u/s 80C of the IT Act, and second, the investment in ELSS has a three-year lock-in period.

ELSS funds pay interest rates ranging from 5% to 18%. However, the returns under an equity-linked saving programme are not fixed and fluctuate depending on the fund's market performance. In an ELSS fund, investors can choose between dividend and growth options based on their needs. However, dividends under an equity scheme are now 10% taxable as of April 1st, 2018. As a result, investors who select growth over dividends are more likely to earn tax-efficient returns.

Investors can diversify their investments in many ELSS schemes depending on sector exposure and market size to reduce risk and maximise long-term capital gains. This tax-advantaged investment scheme provides flexibility and liquidity in investing and is best suited for persons with a high-risk tolerance. Moreover, the ELSS programme provides a high return on investment over a lengthy period of time, as well as the benefit of tax exemption. Aside from that, ELSS investing provides transparency and convenience of investment by allowing investors to track their investments online in a simple and hassle-free manner.

National Pension Scheme

National Pension Scheme, being one of the finest tax-saving investment schemes, assists in providing tax exemption under three main parts, as shown below.

Section 80C of the IT Act allows for tax exemption on contributions up to the highest amount of Rs.1.5 lakh.

Section 80CCD (1b) allows for an extra deduction of up to Rs. 50,000.

The sum is not taxed if the employer contributes 10% of the individual's basic income to the National Pension Scheme. The combination of tax advantages has strengthened the appeal of NPS among investors. However, only 40% of the fund in the national pension programme is tax deductible upon maturity. In addition, 40% of the corpus must be invested in an annuity plan to collect monthly income through NPS. The annuity provided to the investors once they retire considered income and is taxed. 

Unit Linked Insurance Plans

ULIPs are another tax-saving investment that not only gives investors the benefit of tax exemption but also allows them to earn substantial returns on investment over a lengthy period of time. In addition, unlike in the past, the current generation of ULIPs offered by insurance firms has no premium allocation or administrative fees, resulting in higher returns for investors.

Furthermore, by combining the advantages of insurance and investment, one can profit from the taxability of income on the premium paid towards the policy u/s 80C of the IT or Income Tax Act. The investment returns are likewise free from taxation under Section 10(10D) of the IT Act. In addition, ULIP plans have a 5-year lock-in term and provide investors with the convenience of investing.

Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana is another tax-saving investing alternative. It is a remote deposit system explicitly aimed at female children. The idea is part of the "Beti Bachao, Beti Padhao" programme. The Plan presently has an interest rate of 7.6% and provides tax exemption. The tax benefits offered by SSY are among the finest tax-saving investments available.

  • Sukanya Samriddhi Yojana investments are tax-exempt up to a maximum of Rs.1.5 lakh u/s 80C of the IT Act.
  • The interest earned on the SSY account is tax-free because it is compounded yearly.
  • Both the maturity revenues and the withdrawal amount are tax-free.

Public Provident Fund

The public provident fund has a 15-year maturity period that can be extended for another 5 years. Section 80C of the IT Act allows for a maximum tax exemption of Rs 1.5 lakhs. As a government-backed savings system, Public Provident Fund is the most secure and perfect financial vehicle that provides a long-term return on investment. PPF is a popular long-term tax-saving investment programme that integrates tax-saving investments to assist participants in creating a financial buffer post-retirement. Every quarter, the interest rate on the PPF balance is reset.

National Savings Certificate

This is a tax-saving investment programme that may be started at any post office. Because it is a government-sponsored savings system, the National savings certificate assures the security of your money. The strategy is specially designed to attract mid-income individuals to make investments while also providing the advantage of income taxation. Along with the benefits of openness and simplicity of investment, the policy provides the following tax breaks:

  • As a government-sponsored tax-saving investment plan, one can ask for a tax deduction of up to Rs.1.5 lakh u/s 80C of the IT Act.
  • The interest gained on the certificates is added back to the original investments and is tax deductible.
  • In the second year of investing in an NSC account, investors can claim a tax deduction for the NSC investment and the interest generated in the prior year. This is because the interest generated is added to the investment and compounded annually.

Bank FDs Scheme

Bank FDs are comparable to other guaranteed return investment choices in that they are security deposits. The main difference is that the duration of investment in bank FDs is 5 years. In addition, the bank FD provides tax-free income as a tax-saving investment strategy.

This plan is best suited for people with low-risk tolerance and who wish to save money over time.

Individuals can benefit from a guaranteed return on investment with a bank FD since the amount deposited is locked in for the duration of the term.

Senior Citizen Savings Scheme

The Senior Citizen Savings Scheme is a government-launched tax-saving investment scheme developed exclusively for seniors. Individuals over the age of sixty are eligible to invest in SCSS. Investors in this programme can make a one-time investment of Rs. 1,000 and invest up to the highest amount of fifteen lakhs, in the case of joint holding & nine lakhs, in the case of single holding. As a result, the cost of investing in SCSS is quite variable.


Life insurance is a popular tax-advantaged investment product on the market. Individuals are not encouraged to get a life insurance policy only for the purpose of saving taxes, as the primary goal of these insurance plans is to offer insurance coverage. 

Along with the advantage of insurance coverage, one can also get a tax break u/s 80C & 10(10D) of the Income Tax Act. The premium paid and maturity proceeds for a life insurance policy are tax-free. Furthermore, the policy's returns, such as endowment or money-back, are tax-free. Tax exemption is available under a life insurance policy up to a maximum of Rs. 1.5 lakh.


When selecting the best tax-saving schemes, evaluating elements like safety, returns, and liquidity is critical. It is also critical to have a thorough awareness of how the returns will be taxed. If investment returns are taxed, the potential for long-term wealth creation is limited. You can now file your income tax return online through Online Legal India from anywhere at any time.

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Anjali Malhotra


Anjali Malhotra


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