Looking for last-minute tax-saving investments? ELSS to PPF, 7 options you can explore

As March 31 approaches each year, taxpayers tend to get busy contemplating tax-saving investments before the end of the financial year. For most taxpayers, income tax liability could be a financial burden, and it may cause stress in choosing the right investment instrument last minute to save more money. Many taxpayers often look for suitable tax-saving options as the financial year comes to an end. The root cause behind this could be the lack of financial planning well in advance.
Most individuals struggle to put in place a good tax-saving strategy that can lead to cut the total income tax liability.

As the new fiscal year approaches, it is important to zero in on good tax-saving investments. The taxpayers must also determine which tax regime they want to go with. Investing funds randomly in any tax-saving options is not advisable. The investment options you choose to claim tax deductions should align with your financial goals.

The new tax regime, introduced in the Union Budget 2020, has a simplified tax structure with lower tax rates. However, opting for the new regime means one has to forgo maximum deductions and exemptions. While the new regime provides lower tax rates compared to the old tax regime, it removes various deductions and exemptions available under the old regime.

It's important to note that for FY 2023-24, the new tax regime is the default regime. You should opt for the old tax regime to claim the benefits of most deductions and exemptions based on your investments.

Some of the popular tax-saving investment instruments available include Equity Linked Savings Schemes (ELSS), National Pension System (NPS), Public Provident Fund (PPF), Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana (SSY), life insurance, and Employee Provident Fund (EPF).

Let's take a look at some of these investment options that can reduce your tax burden.

1) Equity Linked Savings Schemes (ELSS)

ELSS schemes are mutual fund investment plans that help individuals save income tax. Due to this feature, they are also known as tax-saving funds. Under Section 80C of the Income Tax Act, 1961, taxpayers can invest up to ₹1.5 lakh in an ELSS and claim it as a deduction from their taxable income.

2) National Pension System (NPS)

Any taxpayer subscriber of the NPS can claim tax benefits under Section 80CCD (1) within the overall ceiling of ₹1.5 lakh under Section 80CCE. An additional deduction for investments up to ₹50,000 in NPS (Tier I account) is also available to subscribers under subsection 80CCD (1B).

3) Public Provident Fund (PPF)

For PPF investors, tax exemption under Section 80C is available on investments up to ₹1.5 lakh annually. It has an initial lock-in period of 15 years, after which the accounts can be extended for five years each. As an EEE (Exempt-Exempt-Exempt) scheme, the maturity amount of PPF is entirely tax-free.

4) Unit Linked Insurance Plans (ULIPs)

ULIP investments are also tax-free under Section 80C, with a ceiling of investment at ₹1.5 lakh to get tax benefits. ULIPs have a mandatory lock-in period of five years, during which partial or complete withdrawals are usually not permitted. To be eligible for partial withdrawals after the lock-in period, you must have completed the full payment of premiums for the first five policy years.

5) Sukanya Samriddhi Yojana (SSY)

The SSY scheme is specifically tailored for girl children. Parents can open an account in their daughter's name until she turns ten, with an annual deposit limit of up to ₹1.5 lakh. You can claim tax benefits for SSY deposits under the Section 80C limit of ₹1.5 lakh per annum. The scheme currently offers an 8.2% interest rate for the January-March quarter.

6) Life Insurance

Under Section 80C, premiums paid towards a life insurance policy qualify for up to ₹1.5 lakh deduction. Further, Section 10(10D) makes income on maturity tax-free if the premium is not more than 10% of the sum assured or if the sum assured is at least ten times the premium.

7) Employee Provident Fund (EPF)

The EPF is a government-backed investment tool in which employees and their employers contribute. Tax exemption under Section 80C is available for employees' contributions of up to ₹1.5 lakh per year to the EPF account.

To sum up

It's important to choose your investment instruments in a timely manner while trying to save more tax last minute. Before investing your money, evaluate each investment option carefully. The investments should be chosen as per your financial goal, and it should not turn out to be a burden later.