Your Guide to Best Income Tax Saving Schemes in India

Have you ever wondered how to save on taxes and make your money work for you? Well, it's a question that comes up in every taxpayer's mind. Planning your investments strategically is the key, and that's where income tax saving schemes come in. These tax-saving schemes not only help you save on taxes but also let your money grow. 

While everyone aims to save taxes, not everyone succeeds. It could be because of a lack of knowledge or difficulty in finding the right income tax saving scheme. So, in this article, we've made things simple for you by listing the best tax-saving investment options in India. Our goal is to help you compare these options and make smart investment decisions.

List of Top 10 Income Tax Saving Schemes

The list of top 10 income tax saving schemes is as follows:

1. National Pension System (NPS)

The foremost option in the list of best income tax saving schemes is the National Pension System or NPS. It is a great choice for those looking to save on taxes. This voluntary plan pools your savings into a pension fund managed by the Pension Fund Regulatory and Development Authority (PFRDA). Under NPS, your money gets invested in various options, including Treasury bills, Government bonds, corporate debentures, and shares. For tax savings, you can claim deductions up to Rs. 50,000 under Section 80CCD (1B), in addition to the Rs. 1.5 lakhs limit under Section 80C of the IT Act. NPS caters to both government and private employees, helping them build a retirement corpus with options in equity markets.

2. Sukanya Samriddhi Yojana (SSY)

Launched in 2015 as part of the Beti Bachao Beti Padhao campaign, Sukanya Samriddhi Yojana is an 80c tax saver scheme that has become quite popular. It is one of those tax saving schemes that offers a fixed-income investment where you can make regular deposits and earn interest. The government sets the quarterly interest rate, payable at maturity after a 21-year lock-in period. 

A minimum yearly deposit of Rs. 250 is required, with penalties for non-payment. Eligibility of SSY is for girl children under 10 and opening an account with a minimum of Rs. 250 annually provides triple tax benefits on the principal, interest, and maturity amount, all tax-free.

3. Health Insurance Premium (Section 80D)

Under Section 80D of the Income Tax Act, you can claim health insurance tax benefits of up to Rs. 25,000 for health insurance premiums covering yourself, your spouse, or dependent children. This includes contributions to Central Health Government Schemes or other eligible schemes. One thing to note here is that this tax saving scheme other than 80c not only provides tax benefits but also secures you and your family against emergencies. 

Additional deductions for parents are available, which are Rs. 25,000 if below 60 years and Rs. 50,000 if above 60. If both the individual and parents are above 60, the maximum deduction is capped at Rs. 1,00,000.

4. Public Provident Fund (PPF)

The Public Provident Fund (PPF) is a popular choice among many taxpayers. Falling under Section 80C, investors can claim a  PPF deduction, for the invested amount, up to Rs. 1.5 lakhs. For your information, the interest and maturity amounts are tax-exempt.

With a 15-year lock-in, PPF allows options like withdrawing the proceeds or continuing for an additional 5 years. Offering a competitive interest rate of 7.9% per annum, PPF is a government-backed, fully tax-exempt, long-term investment plan.

5. School Tuition Fees (Section 80C)

School tuition fee is another popular option that falls under the list of best income tax saving schemes. The Income Tax Act of 1961 provides a deduction under Section 80C for school tuition fees. This tax-saving opportunity falls under Section 80C, alongside other investments such as PPF, NSC, ELSS, and more. Deductions of up to Rs. 1.5 lakh are allowed for tuition fees paid to any registered university, college, school, or educational institution.

It's important to note that only tuition fees are eligible for deduction under the Income Tax Act. Any other fees, such as donations or development fees, paid to the institution do not qualify for the deduction.

Both parents can claim deductions based on the amount they individually paid. For example, if the total fee is Rs. 1 lakh, with the father paying Rs. 40,000 and the mother paying Rs. 60,000, both can claim deductions accordingly.

 6. Senior Citizen Savings Scheme

The Senior Citizen Savings Scheme (SCSS) is tailored for individuals above 60 years to save on taxes. You can invest up to Rs. 15 lakhs in this scheme, enjoying a lock-in period of 5 years. The government secures your principal investment, and you receive quarterly interest returns. The interest is taxable but usually falls within the taxable limit. 

Participation in this tax saving scheme for senior citizens allows for a deduction under section 80C, permitting up to Rs. 1.5 lakhs reduction from the taxable income. While the interest earned on these deposits is fully taxable, it becomes eligible for a tax deduction if the interest exceeds Rs. 50,000.

7. Donations Made to Charitable Institutions

Section 80G of the Income Tax Act offers tax deductions for contributions to approved charitable organizations. Donations made via cheque or online transfer qualify for Section 80G deduction, but cash transfers above Rs. 2,000 do not. 

To enjoy the benefit of this income tax saving scheme, make sure you obtain a stamped receipt from the organisation to claim deductions. Depending on the type of organisation, tax deductions can range from 50% to 100% of the donation amount, capped at 10% of the taxpayer's adjusted gross total income.

8. Medical Expenses of Disabled Dependent 

Under Section 80DD, taxpayers can claim deductions for looking after disabled dependents like spouses, children, parents, or siblings. This deduction covers expenses related to medical treatment, nursing, training, and rehabilitation. The disabilities can include blindness, low vision, hearing impairment, mental illness, and autism. 

For moderate disability (over 40% but less than 80%), a fixed deduction of Rs. 75,000 is permitted from the gross total income. In cases of severe disability (over 80%), the fixed deduction allowed is Rs. 1,25,000.

Please note, that to qualify for this income tax deduction, taxpayers should not have claimed a deduction under section 80U.

9. Repayment of an Education Loan

Repaying education loans comes with tax benefits under Section 80E of the Income Tax Act. The interest paid on educational loans is deductible for up to 8 years or until the interest is repaid, whichever is earlier. Parents or children can claim the deduction based on who is repaying the loan. 

Note that the deduction is available only for loans from financial institutions, not family members. 

10. Tax-savings Fixed Deposit

Consider Tax-Savings Fixed Deposits for convenient last-minute tax planning. With a five-year lock-in period and taxable interest earnings, you can claim a deduction of Rs. 1.5 lakhs under Section 80C. Starting with a minimal annual investment of Rs. 10,000, this fixed deposit offers a straightforward and effective way to save on taxes.

Conclusion

When planning how to save tax in India with the best income tax saving schemes available, it's crucial to remember that your goal should not be just about saving tax. But, it should also be about investing in the option that suits you best while saving on income tax.

Frequently Asked Questions (FAQs)

Q. What is the National Pension System (NPS), and how does it help in saving taxes?

A. The National Pension System (NPS) is a voluntary pension plan that pools savings into a fund managed by the PFRDA. Investing in NPS offers deductions up to Rs. 50,000 under Section 80CCD (1B), in addition to the Rs. 1.5 lakh limit under Section 80C.

Q. How does Sukanya Samriddhi Yojana (SSY) work as an 80C tax saver scheme?

A. SSY is a fixed-income investment for girl children under 10. With a minimum yearly deposit of Rs. 250, it offers triple tax benefits on the principal, interest, and maturity amount, all tax-free.

Q. What are the health insurance tax benefits under Section 80D?

A. Under Section 80D, you can claim tax benefits of up to Rs. 25,000 for health insurance premiums covering yourself, your spouse, or dependent children. Additional deductions for parents are available, up to Rs. 1,00,000.

Q. How does the Public Provident Fund (PPF) contribute to tax savings?

A. PPF, falling under Section 80C, allows investors to claim a deduction for the invested amount, up to Rs. 1.5 lakhs. The interest and maturity amounts are tax-exempt.

Q. What are the tax benefits associated with school tuition fees under Section 80C?

A. Section 80C provides a deduction for school tuition fees paid to any registered institution, up to Rs. 1.5 lakh. 

Q. How does the Senior Citizen Savings Scheme (SCSS) provide tax savings for individuals above 60?

A. Senior Citizen Savings Scheme allows a deduction under section 80C, permitting up to Rs. 1.5 lakhs reduction from the taxable income. The interest earned is fully taxable but can be eligible for a tax deduction if it exceeds Rs. 50,000.