Home > Income Tax > Help Center > Income Tax Saving InvestmentsLast Updated: Feb 08th 2023
Best Income Tax Saving Investment Options in India
A comprehensive list of best income tax saving investment options available in India to reduce your taxes. Latest rates updated for FY 2022-23 that every taxpayer to follow, and our detailed analysis including applicability, ROI, risks, rewards.
NEW Updated as per Budget 2023 announcement.
1. Tax Saving Investments under 80C
Not all investments under 80C are the same from Risks, Rewards, Limitations, and return on investment (ROI) perspective, below shows the comparison for easy to choose.
Total Deduction allowed across all Investments: Rs. 1,50,000 + 50,000 + 10% of Salary
| Type of Investment & Reason for Recommendation | Typical Return % Per Year | Risks | Maximum Deduction Allowed |
|---|---|---|---|
| ELSS (Equity Linked Saving Scheme) Reason : You can Save Tax and Grow Money over the time. | 12 - 18%*, This vary drastically based on type of Fund, Holding period, but one need to consider 3 year average. | Invest long period get more benefit and try to avoid dividends |
|
| NPS (National Pension Scheme) Reason : Get money at the time of retirement, 40% of the return is tax exempted. | 9 – 12% | Only 20% exempted when you withdraw before 60 years of age. | |
| i) Employee's contribution to NPS (Section 80CCD-1) | 1,50,000 | ||
| ii) Employer's contribution to NPS (Section 80CCD-2) | 10% of (Basic Salary + DA). It will be in addition to 80C | ||
| iii) Additional Employee's contribution to NPS (Section 80CCD-1B) | 50,000 | ||
| ULIPS (Unit Linked Saving Scheme) Reason : 5 Years lock-in-period gives you Savings and Tax-free Returns | 9-16% * | Early withdrawal may incur charges that may reduce return on investment. |
|
| Sukanya Samriddhi Reason : For higher education purpose you can withdraw 50% deposited | 7.60 % | Available for Girl child under 10 years of age. |
|
| VPF (Voluntary Provident Fund) Reason : Safe and Secure; Money automatically flows into the PF account. | 7.10% |
| |
| PPF (Public Provident Fund) Reason : Safe and Secure; Money automatically flows into the PF account. | 7.10% |
| |
| Senior Citizen Saving Scheme Reason : Post Office saving scheme; Maturity period is 5 years. After 5 years you can increase your period, interest will be added to your savings account | 8% | If account is closed before 2 years, you have to pay 1.5% of balance in to the account, after 2 years 1% of the balance. |
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| NSCs (National Saving Certificate) Reason : Like FD of Money, but the earned interest is not taxable; On retirement, it will fetch you monthly pension as the NSC matures. | 7.0% | Investments cannot be withdrawn prematurely unless the case involves the death of the primary holders. |
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| Pension Plan Reason : 33% of Tax free at the time of withdraw | 6.80% | High Charges |
|
| Bank FDs Reason : The interest rate on tax saving FD is decided by the banks. Senior citizens get a higher interest rate. | 3.00 – 7.00 3.5 – 7.25 %* (for Sr. Citizens) | Tax on interest, The lock in period for the Tax Saving FD is 1-5 years. |
|
| Post Office Recurring Deposit (RD) Reason : The interest rate on tax saving RD is decided by the Post Master General in India. | 5.8 (for 5 years) | Tax on interest, The lock in period generally for 5 years. |
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| Life Insurance Plan Reason : Lower the Taxes, Protects from Life Risks. | 5-6% | May earn 5 to 6% of savings and Life Insurance Cover. Fairly Safe Investment. |
|
| Total Deduction allowed across all Investments: | 1,50,000 + 50,000 + 10% of Salary | ||
Below are the alternatives investment choices for above tax saving instruments for better returns. However these are specific to each individual choices and depends on market conditions. Return on Investment (ROI) is given is based on the public information known.
14.15%
10.15%
4.96%
3.13%
2. Health Insurance (80D)
Health insurance is a type of insurance coverage that pays for medical and surgical expenses incurred by the insured. Health insurance can reimburse the insured for expenses incurred from illness or injury, or pay the care provider directly.
Health insurance cover for self and family premium paid not only buys the health cover but also help in saving your taxes.
Health Insurance Limits for Assessment Year 2019-20 onwards
- A max of Rs. 1,00,000 /- can be deducted from Section 80D
- Rs. 50,000 for medical expenditure of a assessee can be deducted in the absence of a mediclaim. Overall a max cap of Rs. 50,000 for your Family.
- Plus, another Rs. 50,000 for medical expenditure can be deducted for your parents family.
- Deduction under Section 80D is not allowed for payment through cash.
- Senior Citizen : An individual who attains the age of 60 years during a financial year.
- Super Senior Citizen : An individual who attains the age of 80 years during a financial year.
Use Health Insurance Deduction Calculator to know the maximum deduction
3. Savings Interest (80TTA)
An individual can claim a deduction of up to Rs.10,000/- of interest received from Savings Account
Eligibility and Other Details
- From 2018-19 financial year onwards, Savings Account Interest deduction allowed for senior citizens has increased from Rs.10,000 to Rs.50,000/- .
- No deduction is allowed for the interest earned on fixed deposit (FD).
- Available for Individual or a Hindu Undivided Family (HUF).
4. Savings Interest (80TTB)
Senior and Super senior citizens can claim a deduction of up to Rs. 50,000/- of interest received from Savings, and Fixed Deposit (FD). This deduction is new and applicable from assessment year 2019-20.
Eligibility and Other Details
- The tax payer avails the benefit of 80TTB can’t claim the benefit of 80TTA, the total limit of 80TTA and 80TTB is Rs.50,000
- Available for Individual or a Hindu Undivided Family (HUF)
- 80TTB is available only for Resident Individuals or HUF
Note : Non-resident senior citizens cannot claim deduction u/s 80TTB. However they can claim deduction of Rs 10,000 u/s 80TTA
5. Interest on Education Loan (80E)
There is no limit on the amount of interest on education loan, you can claim as deduction for interest that you pay towards your Education Loan. This loan should have been taken for higher education for you, your spouse or your children or for a student for whom you are a legal guardian.
Eligibility and Other Details
- Entire interest paid on education loan in a financial year is eligible for deduction u/s 80E
- No deduction on principal paid for the Education Loan.
- Loan should be for education of self, spouse or children only.
- Loan should be taken for pursuing full time courses only.
- Loan has to be taken necessarily from approved charitable trust or a financial institution only.
- The deduction is applicable for the year you started paying your interest, and seven more years immediately after the initial year. You can claim education loan deduction for maximum eight (8) years.
NOTE:
- Deduction u/s 80E is applicable for all courses pursued after the senior secondary examination or equivalent and it should be from a school/institute/university recognized by the government.
- Education Loan can be for the courses in India or outside India
- Check with the bank regarding the type of loan needs to be applied to claim deduction u/s 80E
6. House Rent paid by Self-employed or Salary with no HRA (80GG)
House rent paid by Self-employed or Salary with no House Rent Allowance (HRA) is eligible to claim house rent deduction u/s 80GG.
Eligibility and Other Details
- Rent paid in excess of 10% of total income for furnished/unfurnished residential accommodation (subject to maximum of Rs. 5,000 p.m. or 25% of total income, whichever is less).
- You cannot claim this deduction if you or your spouse or minor child or, where you are a member of a Hindu undivided family own a residential accommodation.
- NOTE: The taxpayer claiming deduction towards rent paid u/s 80GG should submit Form 10BA in Income Tax portal before ITR eFiling. Otherwise rent paid u/s 80GG will be disallowed as deduction
You may refer more about Section 80GG @ Deduction in respect of Rent Paid (80GG)
7. Donations (80G)
- Donations made to specified relief funds and charitable institutions as a deduction from gross total income before arriving at taxable income.
- The amount of donation which can be claimed as a deduction under section 80G is determined as per certain rules. You can claim either 100% or 50% of the amount donated as a deduction subject to 'With' or 'Without' the upper limit.
- No deduction shall be allowed in respect of any sum exceeding Two thousand rupees unless amount is paid by any mode other than cash.
- Donation in Kind is not allowed as deduction
8. Donations (80GGA)
Donation made for scientific research or rural development the whole amount given is allowed as deduction
Eligibility:- No deduction shall be allowed in respect of any sum exceeding ten thousand rupees unless amount is paid by any mode other than cash.
- No deduction shall be allowed in case of an assesse whose gross total income includes income which is chargeable under the head 'Profits and gains of business or profession'.
9. Donations (80GGC)
Donation to a recognised political party or an electoral trust can claim full tax deduction.
Assesse needs to pay donation through cheque, demand draft or internet banking. Cash payments are not eligible for rebate.
10. Interest on Home Loan (24b)
10A. Self-Occupied Property
- Acquisition/Construction: Interest payable on loan taken for the purpose of acquisition or construction, can be claimed as deduction. The maximum interest that can be claimed as deduction u/s 24b is Rs. 2,00,000.
- Repairs/Renewal/Reconstruction: Interest payable on loan taken for the purpose of repairs/renewal/reconstruction can be claimed as deduction up to a maximum of Rs 30,000
10B. Let Out Property/Deemed to be Let out
If the loan is against a property on which there is rental income, there is no limit on the interest to be claimed as deduction against rental income
Example: Mr Krishna has purchased a property in 2021 against a Loan. He is getting rental income of Rs 3,60,000 per year. He is paying a Home Loan interest of 5,20,000 per year against the same property.
- Rental Income – 3,60,000
- Less: Standard Deduction @ 30% – 1,08,000
- Less: Home Loan Interest – 5,20,000
- Loss on House property: – 2,68,000
Mr Krishna can carry forward this loss upto 8 years and set off the same against his rental income in future
Note 1: Acquisition or construction should be completed within 5 years from the end of financial year in which the capital was borrowed
Note 2: Interest payable on a fresh loan taken to repay the original loan raised is eligible for deduction
Note 3: Interest accrued but not paid can also be claimed as deduction u/s 24. However interest on unpaid interest is not deductible
11. Interest paid on Housing Loan on / after Apr 01st 2019 (80EEA)
Section 80EEA gives additional exemption of Rs. 1,50,000/- on the payment of interest on Home Loan. This deduction is available if the loan is taken under affordable housing scheme. The deduction u/s 80EEA is available from AY 2020-21 and subsequent years. Section 80EEA is applicable for the loans taken from 01/04/2019 to 31/03/2023.
Note: For the Loans taken from FY 2022-23 , Interest paid is not eligible to be claimed under Section 80EEA. Interest paid on Loans taken before 01/04/2022 are eligible to be claimed under Section 80EEA
Permissible Limits and Other Details
- The loan has to be sanctioned by the financial institution between 01/04/2019 to 31/03/2023
- The amount of loan sanctioned for acquisition of the residential house property does not exceed 35 lakh rupees;
- The value of residential house property does not exceed Rs. 45 lakh
- The assessee does not own any residential house property on the date of sanction of loan.
12. Interest paid on Electric Vehicle Loan (Section 80EEB)
Section 80EEB gives tax benefit on purchase of an electric vehicle. Interest paid on loans taken for the purchase of electric vehicle is allowed as deduction upto Rs 1,50,000. The deduction u/s 80EEB is available from AY 2020-21 and subsequent years. Section 80EEB is applicable for the loans taken from 01/04/2019 to 31/03/2023
Permissible Limits and Other Details
- Electric Vehicles made affordable by providing IT reduction of Rs 1.5 L on interest paid on Loan taken to purchase. This is in addition to lowering the GST from 12% to 5%
- The loan has to be sanctioned by the financial institution during the period beginning on the 1st day of April, 2019 and ending on the 31st day of March, 2023;
- Certain conditions apply on the eligibility of the Electric Vehicle (EV)
Note: For the Loans taken from FY 2022-23 , Interest paid is not eligible to be claimed under Section 80EEB. Interest paid on Loans taken before 01/04/2022 are eligible to be claimed under Section 80EEB
13. Deduction in respect of maintenance including medical treatment of a dependent disabled (80DD & 80U)
Important Note: Form 10-IA from a certified competent medical authority (mostly a government doctor) is needed to claim this benefit. In most cases, the IT department ask you to upload this document for verification. You should plan to have this document handy before claiming this benefit while filing your taxes in India. Applies to both benefits under sections 80DD, 80U
Section 80DD provides deduction in respect of maintenance including medical treatment of a dependent disabled. The amount of deduction is as follows
The amount of deduction available based on % of disability.
- Disability (Less than 80%) – Rs 75,000
- Severe Disability (80% or more than 80%) – Rs 1,25,000
The disabilities that are considered by Income Tax Act for a tax deduction are
- Blindness
- Low vision
- Leprosy-cured
- Hearing impairment
- Loco motor disability
- Mental retardation
- Mental illness
Two most frequently used terms to define the level of Disability.
- Disability: minimum 40% of the disability from given list
- Severe Disability: 80% or more of the given disability
13.A. Section 80DD (Family Member - Disabled)
- Under this section, the individual or HUF can claim deductions when their family member is differently abled.
- When the person has done any spending in the medical treatment, nursing, rehabilitation or training of the differently abled person.
- When there are premiums / payments deposited to any scheme formed by LIC, which is for the good of the disabled person.
- The deduction must be claimed by a resident Indian only.
- In order to claim the deductions, one needs to acquire a certificate from the medical authority and furnish the copy of the same while filing Taxes.
Note: As per Budget 2022, the parents /guardian can claim deduction u/s 80DD if they take a Life Insurance policy on dependants even on the payment of Lumpsum amount or annuity during the lifetime of Parents/guardian attaining the age of 60 years
Earlier the deduction was allowed only if the lumpsum or annuity received by disabled people only after death of parents or guardian
13.B. Section 80U (Self - Disabled)
- This Section is only available to the Individual taxpayers.
- An individual who is differently abled can claim deductions for himself.
- The deduction must be claimed by a resident Indian only.
- Here too, in order to claim the deductions, one needs to acquire a certificate from the medical authority and furnish the copy of the same while filing Taxes.
- Amount of deduction:
- Disability (Less than 80%) – Rs 75,000
- Severe Disability (80% or more than 80%) – Rs 1,25,000
13.C Difference between 80DD and 80U
- The main difference between 80DD and 80U is that in 80U, there are no necessary expenses that avail the taxpayer for deduction. The taxpayer receives the deductions just on the basis of him being differently abled.
14. Treatment of specified diseases and ailments (80DDB)
Section 80DDB provides deduction in respect of medical expenditure towards specified disease or ailment on self or dependent is available as a deduction.
The amount of Deduction available is as follows- Resident Individual - Rs 40,000 or amount paid whichever is less
- Resident individual of age 60 years or more - Rs 1,00,000 or amount paid whichever is less
14.A. Permissible Limits and Other details
- Dependent can be parents, spouse, children or siblings. They should be wholly or mainly dependent on you.
- In case any payment is received from an insurer or reimbursed by an employer towards such medical treatment, the deduction that can be claimed shall be reduced by the amount of such insurance or reimbursement.
- It is essential to obtain the prescription for such medical treatment from a neurologist, an oncologist, a urologist, a hematologist, an immunologist or such other specialist, as may be prescribed.
- The prescription shall contain the name and age of the patient, name of the disease or ailment along with the name, address, registration number and the qualification of the specialist issuing the prescription. Where the patient is receiving the treatment in a Government hospital, such prescription shall also contain the name and address of the Government hospital.
14.B. Eligible Diseases or Ailments
For the purposes of section 80DDB, the following shall be the eligible diseases or ailments:
- Neurological Diseases where the disability level has been certified to be of 40% and above,
- Dementia
- Dystonia Musculorum Deforman
- Motor Neuron Disease
- Ataxia
- Chorea
- Hemiballismus
- Aphasia
- Parkinson's Disease
- Malignant Cancers
- Full Blown Acquired Immuno-Deficiency Syndrome (AIDS).
- Chronic Renal failure
- Hematological disorders
- Hemophilia
- Thalassemia
15. Royalty Income on Patents (80RRB)
Royalty on patents up to Rs. 3,00,000 in the case of a resident individual who is a patentee and is in receipt of income by way of royalty in respect of a patent registered on or after 1-4-2003 (subject to certain conditions).
Permissible Limits and Other Details
- Sometimes, in public interest, Government grants compulsory license to use patent.
- In this case, Controller of Patents of the Government Settles the amount of Royalty Payable.
- Deduction under this Section cant be more than amount settled.
16. Royalty Income on Authors (80QQB)
Under section 80QQB, deduction of up to a maximum Rs 3,00,000 is allowed to an individual resident in India in respect of income derived as author i.e., the deduction shall be the income derived as author or Rs 3,00,000, whichever is less.
- This income may be received either by way of a lump sum consideration for the assignment or grant of any of his interests in the copyright of any book.
- Such book should be a work of literary, artistic or scientific nature, or of royalties or copyright fees (whether receivable in lump sum or otherwise) in respect of such book.
Permissible Limits and Other Details
- Deduction shall not be available in respect of royalty income from textbook for schools, guides, commentaries, newspapers, journals, pamphlets and other publications of similar nature.
- The amount of eligible income (before allowing expenses attributable to such income) shall not exceed 15% of the value of the books sold during the previous year.
- However, this condition is not applicable where the royalty or copyright fees is receivable in lump sum in lieu of all rights of the author in the book.