In 2024, investors with a keen sense of financial acumen are diligently exploring avenues for tax savings to optimise their investment portfolios. With a plethora of innovative strategies and tried-and-tested options available, there exists a diverse array of possibilities for tax-efficient wealth accumulation.
Among these options, choices such as the Employee Provident Fund (EPF) and the Public Provident Fund (PPF) have maintained their prominence due to their enduring appeal. This is primarily attributed to the multitude of tax benefits they offer, coupled with their reputation for providing steady returns over time.
Additionally, the Equity Linked Savings Schemes (ELSS) have garnered attention for their potential for significant growth and the attractive tax deductions they offer under Section 80C of the Income Tax Act.
As the year unfolds, these tax saving options are poised to play an integral role in facilitating the creation of tax-efficient wealth. This blog helps you explore these avenues in greater detail and promises invaluable insights into their mechanisms and potential benefits for investors. So, let's begin!
8 best tax saving investment options for 2024
Here are some of the best options for tax-saving investments available in 2024.
1. ELSS (Equity Linked Saving Schemes)
These are mutual funds that are invested in equity and equity-related instruments. ELSS funds provide dual advantages of higher returns and tax savings according to Section 80C of the Income Tax Act. They are a much better option than the normal tax-saving instruments.
The primary tax benefit of ELSS is that it qualifies for an Rs. 1.5 Lakh deduction under Section 80C and comes with a short lock-in period of 3 years. The ELSS funds have been said to deliver outstanding returns, and due to such reasons, they have become ideal for long-term wealth creation.
Apart from that, since this tax saving option is completely equity-oriented, it is equipped with market risks. But during the long term, the higher returns help reimburse for such risks effectively.
2. PPF (Public Provident Fund)
Public Provident Funds are government backed, long-term schemes that fully concentrate on retirement planning. PPF is ideal for both savings and Digital Savings Account holders. This scheme will also provide tax-free and fixed interest rates. As to the tax benefit, this scheme qualifies for the Rs. 1.5 Lakh tax deduction.
PPF’s interest rates are revised quarterly, which is much higher than the fixed deposit rates offered by the banks. The Public Provident Fund has a 15-year lock-in period, but you’re eligible for partial withdrawals in the 7th year.
Furthermore, public provider funds are considered one of the safest and best investment options, mainly because of the self-governing guarantee.
3. PS (National Pension System)
The National Pension System is a long-term, voluntary, and best tax saving fund regulated1 by PFRDA (Pension Fund Regulatory and Development). NPS doesn’t just qualify for a deduction of over Rs. 1.5 Lakhs under Section 80C but is entitled to an extra deduction of Rs. 50,000 under Section 80CCD (1B).
NPS is offered as an investment choice for government securities, various risk profiles, corporate bonds, and equity. The maturity amount for this investment option is partially taxable and will also allow partial withdrawals for certain reasons.
Employer’s contribution towards NPS will lead to a deduction of 10% of salary under Section 80CCD (2).
4. Tax Saving FDs (Fixed Deposits)
You will come across many banks that will provide you with countless tax-saving FDs with a 5-year lock-in period. Investments on these Fixed Deposits are entitled to Rs. 1.5 Lakh tax deduction under Section 80C of the Income Tax Act.
Compared to normal fixed deposits, tax-saving ones provide a much higher interest rate and are completely safe because they are well-protected by banks. However, the only drawback of these fixed deposits is that they generate much less return when compared to market-connected investments.
Must Read: What Is A Tax Saving FD?
5. ULIPs (Unit Linked Insurance Plans)
Unit Linked Insurance Plans are known for being the best tax saving investments in today’s market. They are investment-cum-insurance products, which will provide a life cover and market-connected returns.
All premiums paid under this investment plan qualify for an Rs. 1.5 Lakh tax deduction. Besides that, ULIPs offer the flexibility to pick between balanced funds, debt, or equity according to the risk appetite.
They also come with a 5-year lock-in period, and it’s fundamental to understand all the charges associated with this particular scheme.
6. SSY (Sukanya Samriddhi Yojana)
Sukanya Samriddhi Yojana is created for a girl child’s marriage and education. All contributions made to a government-backed scheme are eligible for tax deduction under Section 80C, and in return, it offers tax-free interest.
The interest rates of Sukanya Samriddhi Yojana are much higher than the provident funds and are revised quarterly. Girls below 10 years of age are eligible for this scheme, and the deposit for this scheme from a savings account can be made until the girl child turns 15 years old. Partial withdrawals for the child’s education can be done once the child turns 18.
Must Read: 6 Benefits Of Sukanya Samriddhi Yojana
7. EPF (Employee Provident Fund)
Employee Provident Fund is a retirement savings option for all working professionals. All the contributions to this scheme become eligible for a tax deduction for a prescribed limit under Section 80C.
The interest rates of EPF are reviewed annually and are much higher than the other schemes. You are qualified for premature withdrawals, but only for specific reasons. It’s suggested that you keep your funds invested for a long time.
Apart from that, a contribution made by the employer to this scheme also qualifies for tax advantages.
8. SCSS (Senior Citizen Saving Scheme)
This government scheme is ideal for all older citizens and offers tax benefits and regular income. All the investments made in the Senior Citizen Saving Scheme are eligible for a tax deduction of Rs. 1.5 Lakhs.
Besides that, the interest rates reset quarterly and are higher than other fixed-income choices. This government scheme has a 5-year lock-in period, which can be extended to more than 3 years.
Individuals over 55 years old have opted for voluntary retirement, and those above 60 years of age are eligible for this scheme.
Conclusion
As we journey through the world of tax-saving investments in 2024, aligning all options with investment horizon, risk tolerance, and monetary objectives is imperative. Diversification across all these investment choices will magnify the returns and mitigate the risks for the long term.
Before you opt for any tax saving investment choice, you should consult with a trusted financial advisor. That way, you can make a personalised investment and tax-saving strategy.
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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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