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Top Tax Savings Options Available for Young Salaried Indians

 The tax-saving season for Indians, including salaried individuals, starts on April 1. So, instead of waiting for the financial year to end and choosing ad-hoc tax-saving avenues, it's better to start investing early in the financial year. Then you can get the maximum time to plan your investments and boost your returns. But which tax-saving tool should you choose? 

Here are the top tax-saving options available for young salaried individuals in India. 


Top Tax-Saving Options for Young Salaried People

Tax-Saving Mutual Funds: You can invest in the top tax-saving mutual funds, i.e., the best equity-linked savings schemes (ELSS), to get tax benefits with the opportunity to accumulate wealth over time.


These funds invest a significant part of their corpus into equities or equity-related assets. They have a medium- to high-risk profile and a high potential to offer good returns. Investments are locked in for 3 years. To avoid making a lump sum investment, you can pick the best SIP (systematic investment plan) to start. 


Your investments are eligible for a tax deduction of up to ₹1,50,000 in a financial year under the Income Tax Act, Section 80C. Proceeds on maturity and death are tax-free, according to Section 10(D).


New Pension Scheme (NPS): It is regulated by the Pension Funds Regulatory and Development Authority. Investments in NPS are managed in 3 different accounts with distinct asset profiles - government securities, corporate bonds, and equities. The total tax deduction on NPS investments under Section 80C, 80CCC and 80CCD can't surpass ₹1,50,000. 


National Savings Certificate (NSC): It is suited for small- to mid-income investors who also wish to receive tax benefits under Section 80C. You must have a savings account with a post office or a bank to buy NSCs for yourself, with a joint account holder, or on a minor's behalf. 


Public Provident Fund (PPF): You can open it at a bank or post office for long-term savings cum investment. Contributions to this fund earn interest at a specific rate. Tax deductions on these deposits can be claimed up to ₹1,50,000 in a financial year under Section 80C. 


Fixed Deposit (FD): You can claim a tax deduction of up to ₹1,50,000 by investing in a tax-saver FD with a 5-year lock-in period. The interest rate is usually lower than that of the other tax-saving alternatives. The interest earned is taxable. 


Which is the Best Tax-Saving Option?

Here is a comparison of the tax-saving instruments based on different factors:


Investment

Returns

Lock-In Period

Tax on Returns

5-Year Bank FD

5%-7%

5 years

Yes

PPF

7%-8%

15 years

No

NSC

7%-8%

5 years

Yes

NPS

8%-10%

Till retirement

Partially taxable

ELSS Funds

15%-18% 

3 years

Partially taxable


Tax-saving schemes like NPS, NSC, PPS and FD can help generate wealth over time but offer limited returns. 


ELSS funds have the shortest lock-in period among all tax-saving tools. The top tax-saving mutual funds have the prospect of yielding the highest returns among all 80C options. Even their post-tax returns are better than those of the other tax-saving alternatives. Just choose the best SIP plan to start investing.


Conclusion

Consider the size of returns, liquidity and your risk appetite to pick the most suitable tax-saving option and jumpstart investing in it in 2023!
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