There are various options offered by investment companies in India like mutual funds (ELSS), FDs of five year, ULIPs, PPF, NSCs and NPS. Having a platter full of so many options, it becomes difficult for the person to choose one specially if you are new to investing market. As an investor you aim should be generating tax-free income and not just merely save tax. Whilst looking for an investment instrument that saves tax amongst multiple factors like liquidity, security and returns, it is crucial you consider how the returns on your investment are taxed. This is because if the income earned is taxable then the returns get affected as major part of it will be eaten by taxes.Read further to analyse, compare and select best suitable tax-saving investment option that provides tax-exempted returns.

Tax saving investment options are typically divided into two categories. First is under Section 80C, Section 80CCC and Section 80CCD, this offers tax deduction of up to ₹1.5 lakhs max. Second is under Section 80CCD(1B), in which you receive additional deduction in contributing in NPS for up to ₹50,000. If you use both the tax deduction options, you can claim tax benefits up to ₹2 lakh. Also, if you come under the tax bracket of 30% then you save up to ₹62,000 in tax.

Here are top 6 tax saving investment options that will help you in saving tax as well as earning tax-free money.

1. Equity Linked Savings Schemes (ELSS)–ELSS are diversified equity mutual funds with variated features. The investment amount comes with tax benefits under Section 80C of the Income Tax Act.
2. Public Provident Fund – PPF schemes is one of the most popular investment avenues as it offers sovereign guarantee and tax-free returns. Currently PPF provides 7.9% percent per annum
3. Employee’s Provident Fund – An EPF plan is created for salaried workers to help save tax with savings and accumulate tax-free funds. In this plan 12% of the employee’s basic salary is contributed to the plan every month while the employer contributes equal share of which 3.67% goes to EPF. In this scheme only the employees share is eligible for tax benefits under Section 80C of the Income Tax Act up to a limit ₹1.5 lakh.
4. Unit Linked Insurance Plan (ULIP) – ULIP plan is a combination plan that provides both protection and savings. Typically ULIP plan provides life cover and also invests your savings in different market-linked plan to grow your money. A ULIP can have term of 15 to 20 years but the lock-in period is of 5 years. While the fund value of exiting the plan or on maturity is tax free, the switching of funds is exempted from tax.
5. Traditional Insurance Plan– There are different types of traditional insurance plans like endowment plan, whole life plan and mone-back plan. These plans come with saving elements and fixed termadn sum assured amount. The premiums you pay for such plans depend on the sum assured and term you choose and the your age at which you buy the plan. You can enjoy tax benefit under Section 80C for the premiums you pay towards these plans, but the maturity value and death benefits are tax-free.
6. Sukanya Samriddhi Yojana (SSY) –Sukanya Samriddhi Yojana (SSY) is a small deposit scheme launched by government of India for girl child under BetiBachaoBetoPadhao campaign. The scheme fetches the interest rate of 8.4 percent and offers income tax benefits. Anyone can open Sukanya Samriddhi account anytime with a minimum deposit of ₹250 after the birth of a girl child until she turns 10. You can deposit maximum upto ₹1.5 lakhs during a financial year in this scheme. Currently Sukanya Samriddhi Yojana is the highest tax returning scheme with 8.4 percent per annum.