So many options, so little time, if you have still not completed your tax planning for this financial year, don’t panic. We cut through the clutter and tells you which is the most suitable option for you.  Most of us work really hard round the year, but give very little priority to the important activity of tax-planning. 

Waiting till the last date of tax filing or submission of investment proofs may not give us sufficient time to think through our investment decisions and at the same time puts undue pressure on our cash flows.

Most of us are aware about the instruments eligible for tax saving under Section 80C (with an increased exemption limit of ₹ 1.5 lacs) and under Sections 80CCE, 80D, 80E, 80G, 24(b), etc., of Income Tax Act, 1961 but a large proportion of us do not utilize the benefits fully. 

Just by investing in options available under Sections 80C and 80D, you would be able to save tax upto the extent of ₹ 63,345/-*.

While you’re planning for your taxes, it is advisable to choose instruments that would not only save tax but would also provide the long term benefits in terms of savings or protection, in line with your financial goals.

You can diversify your portfolio across the host of options mentioned below:

Tax Benefit Under Section Maximum Investment Amount
(in ₹)
Certain Investment options eligible for exemption
80C 1,50,000 Market-linked:

  • Mutual Funds (Equity Linked Saving Scheme)
  • Life Insurance

Fixed Income:

  • Public Provident Fund
  • 5-year Tax saver FD

Others:

  • Repayment of Housing Loan principal 
  • Maximum tax amount saved: ₹ 46,350/-
80D 55,000 Health Insurance: Mediclaim Insurance policy

Maximum tax amount saved: ₹ 16,995/-

24(b) 2,00,000 Interest on Housing Loan for self-occupied property
80G Depends upon the list of Approved Funds / Charitable Institutions Donate online: Reach out and make a difference.

Investment Lock-in Period Expected Returns Tax Applicable
ELSS 3 Years 14 to 16% Complete Tax Free
5 Year Bank FD 5 Years 9.50% Interest is Taxable
PPF 15 Years 8.50% Complete Tax Free
NSC 50 OR 10 Years 8.50% Interest is Taxable
Life Insurance 5 Years 0 to 6% Complete Tax Free

Bottom-line:

ELSS funds top our ranking for because of their tremendous potential, high liquidity and greater transparency. The ELSS category has given average returns of 17.8% in the past three years. The three-year lock-in period is the shortest for any Section 80C option.

ELSS, which is known as Equity Linked Savings Scheme (ELSS) is a diversified equity mutual fund, which has a majority of the corpus invested in equities. Since, it is an equity fund, returns from an ELSS fund, reflects returns from the equity markets and investing in this for a long-term and can give better returns when compared to other asset classes over the long-term.

ELSS proposes both dividend and growth options to the person investing in them. The growth option has the potential to generate higher returns; the Investors get a lump sum on the expiry of 3 years in the growth schemes. On the other hand, the dividend option provides a periodic income to the investor, whenever the dividend is declared by the fund, even during the lock-in period.

The best thing about ELSS is that it provides an opportunity to grow money and at the same time also qualifies for tax deduction of up to Rs.1.5 lakhs under section (u/s) 80C of the Indian Income Tax Act. This means that the investor has the upper hand when he goes for this scheme.  What’s more, you can get some of the investment back if you opt for the dividend option. It is also very easy to get details of the fund’s portfolio.