Tax Planning for FY2024-25: Where to Invest to Save Taxes and Get Higher Returns
Investing with a dual objective of saving taxes and achieving higher returns is a prudent strategy for maximizing your financial growth. Various investment options provide tax benefits under Section 80C of the Income Tax Act, allowing you to reduce your tax liabilities while aiming for attractive returns. Here’s a detailed overview of some popular tax-saving investment options for FY2024-25:
1. Equity-Linked Savings Scheme (ELSS)
- Tax Benefit: Up to ₹1.5 lakh under Section 80C.
- Returns: Historically high, due to equity market exposure.
- Lock-in Period: 3 years.
- Suitability: Best for investors with a higher risk appetite seeking significant growth.
2. Public Provident Fund (PPF)
- Tax Benefit: Up to ₹1.5 lakh under Section 80C.
- Returns: Competitive interest rate, currently around 7-8%, compounded annually.
- Lock-in Period: 15 years, with an option to extend in blocks of 5 years.
- Suitability: Ideal for risk-averse investors looking for safe and tax-free returns over the long term.
3. National Pension System (NPS)
- Tax Benefit: Up to ₹1.5 lakh under Section 80C and an additional ₹50,000 under Section 80CCD(1B).
- Returns: Market-linked returns from a mix of equity, corporate bonds, and government securities.
- Lock-in Period: Till retirement (partial withdrawals allowed after 3 years).
- Suitability: Suitable for long-term retirement planning with tax advantages.
4. Unit-Linked Insurance Plans (ULIPs)
- Tax Benefit: Up to ₹1.5 lakh under Section 80C.
- Returns: Market-linked, based on a mix of equity and debt investments.
- Lock-in Period: 5 years.
- Suitability: For those seeking both insurance coverage and investment growth.
5. Tax-Saving Fixed Deposits (FDs)
- Tax Benefit: Up to ₹1.5 lakh under Section 80C.
- Returns: Fixed interest rate, currently around 5-7%.
- Lock-in Period: 5 years.
- Suitability: Ideal for conservative investors seeking capital protection and guaranteed returns.
6. Sukanya Samriddhi Yojana (SSY)
- Tax Benefit: Up to ₹1.5 lakh under Section 80C.
- Returns: Government-set interest rate, currently around 8%.
- Lock-in Period: Until the girl child turns 21.
- Suitability: Best for parents looking to secure their daughter’s future with tax benefits.
7. Senior Citizens Savings Scheme (SCSS)
- Tax Benefit: Up to ₹1.5 lakh under Section 80C.
- Returns: Fixed interest rate, currently around 7-8%.
- Lock-in Period: 5 years, extendable by 3 years.
- Suitability: Ideal for senior citizens seeking regular income and tax savings.
Strategies for Optimal Tax-Saving and Returns
1. Diversification
Spread your investments across different asset classes to manage risk and optimize returns. For example, a mix of ELSS (for high returns), PPF (for safe, tax-free returns), and NPS (for retirement planning) can balance risk and reward effectively.
2. Goal-Based Investing
Align your investments with your financial goals and time horizons. For instance, use ELSS for medium-term goals, PPF for long-term security, and NPS for retirement.
3. Regular Review
Monitor and rebalance your portfolio periodically to ensure it aligns with changing market conditions and your financial goals. This helps in maintaining the desired asset allocation and optimizing returns.
Expert Insights
“Tax planning helps you reduce tax burden by taking advantage of various exemptions, deductions, and tax-saving investments available under the Income Tax Act. Utilizing instruments such as Equity-Linked Savings Schemes (ELSS), Public Provident Fund (PPF), and National Pension System (NPS) allows taxpayers to claim deductions up to ₹1.5 lakh under Section 80C, thus lowering their taxable income. Tax saving is as important as investment for the long-term growth of your investment,” says Adhil Shetty, CEO, Bankbazaar.com.
