Tax-Saving Investment Options in India for 2025
Introduction
Financial abundance is what keeps everyone and everything sane. Can you disagree on this? We have woken up to this reality more strongly, after the pandemic. So, trying to increase your income isn’t enough to strengthen your personal finances; save as much as possible and tax saving is an important way to make that happen. In this blog, we’ll elaborately talk about the different tax-saving investment options in India for 2025 so hang in there!
When Warren Buffett said, “If you don’t find a way to make money while you sleep, you will work until you die,” he was right. His reminder is what has pushed thousands of people towards investment. However, earnings from investments are taxable and that’s a serious concern but if you know how to save tax through investments in India then you need not worry. If you can manage to control your tax on earnings from investment then you will have more disposable income, enjoy more financial freedom, invest further, spend on what you want, and above all, become more financially secure. This blog is going to be your guide in finding the top tax-saving options for financial year 2025-26.
Equity-Linked Savings Scheme (ELSS)
The ELSS is one of the trusted mutual funds where you can invest for interesting earnings and save tax. The Income Tax Act, of 1961, allows tax deduction under section 80C. As you invest in ELSS, it invests at least 65% of it in equity and the remaining amount in fixed- income securities. That’s how you earn by investing in ELSS funds.
The Income Tax Act of India allows substantial relaxation to taxpayers under Section 80C if they invest in ELSS funds. You can enjoy a tax rebate of up to 1, 50,000 in a year. A taxpayer can thus save up to Rs 46,800 in a single year and that’s a significant amount.
To give you a complete understanding of the ELSS funds and their benefits as an investment option, we are mentioning the performance of some of the ELSS funds. Let’s begin with the Quant Tax Plan Fund which is said to have yielded a 34.96% return in a year since last 3 years and if you consider the span of 5 years then the return was 30.25%. The Bandhan Tax
Advantage (ELSS) Fund rewarded its investors with 28.88% returns in three years and the return for the last five years was 18.62%. The annual return enjoyed by investors of SBI’s long-term equity fund was 27.47% for three years and 28.4% for the last five years. Motilal Oswal ELSS Tax Saver Fund allowed a return of 26.95% and 28.53% in three years and five years, respectively. While these are the top three ELSS funds that have performed impressively there are several others too that you can look for before investing.
ELSS carries all the typical risks of an equity mutual fund because its orientation is that of an equity mutual fund. Risks that affect the market are also risks for ELSS funds, as well as volatility and concentration risks. However, we have mentioned before several ELSS funds that have given impressive returns and also saved tax. The lock-in period of these funds is three years, which is considerably less time than others, generates higher returns, saves tax, investors can avail of the SIP options, it’s safe for investment, and the process of investment is transparent. The advantages weigh more than the risks making ELSS funds safe and rewarding for investment.
Public Provident Fund (PFF)
Public Provident Funds (PFF) are a safe option for investors to put their money in. They currently offer a 7.1% rate of interest per annum, tax benefit of up to 1.5 lakh under Section 80C, and the returns that investors get to enjoy are guaranteed. Investors can start investing with as little as Rs 500 and can invest up to Rs. 1.5 lakh, every year for up to 15 years. The rate of interest and minimum amount of investment are particularly very encouraging, especially for first-time and low-income investors. Besides these, there are quite a few more benefits to consider investing in PFF funds.
The Income Tax Act of 1961 guarantees tax exemptions under section 80C where the investor can claim the complete investment amount to be waived if the total principal invested in a year is not more than 1.5 lakh. This is because the PPF comes under the Exempt-Exempt- Exempt category making all deposits in the fund deductible under section 80C of the Income Tax Act of 1961.
An investor can enjoy complete returns after the agreed tenure and not pay any tax for it.
Thus, it results in 100% wealth accumulation without paying any taxes for it.
National Pension System (NPS)
The National Pension System is a well-planned investment option for creating supportive regular income for retired life. Under this system, a defined contribution is made by the investor. A salaried person as well as a self-employed person can claim tax exemption up to Rs 150,000 under the Income Tax Act of 1961, section 80CCD(1B).
As an investor you can choose your Point of Presence (POP) or change it, you can change your pattern of investment and even fund manager. The scope and flexibility to change allow you to multiply your returns by investing in different assets ranging from government securities, equity, corporate bonds, and alternate assets, according to your comfort and convenience.
The Income Tax Act of 1961 allows investors, whether salaried or self-employed, to claim tax exemption of up to 50000 under its section 80CCD(1B). Salaried investors can invest up to 10% of their compensation and be eligible for tax exemption under section 80CCD(1B) but the tax exemption will only be till Rs 150,000. Section 80C of the Income Tax Act (1961) limits tax exemption to the mentioned amount. For self-employed investors, they would need to invest 20% of their gross annual income for tax exemption under the same rules.
Investing in NPS allows you to systematically create sufficient finance to support the needs of your retired life. It gives you a transparent picture to plan your retirement more strategically and live it without financial uncertainty.
Tax-Saving Fixed Deposits (FDs)
Earnings from fixed deposits are taxable which creates room for tax-saving fixed deposits. This special type of fixed deposit enables investors to earn from the interest without paying taxes for it. The Income Tax Act of 1961 under section 80C allows a tax deduction of Rs 150,000 every year if you invest in Tax-Saving Fixed Deposits, but you cannot withdraw it before five years. This is what differentiates a regular fixed deposit scheme from this one.
You can start investing in a tax-saving fixed deposit if you are an Indian, even a Non- Residential Indian, a senior citizen, or someone from a Hindu Undivided Family. The minimum tenure of investment is five years. Within these five years, you won’t be able to withdraw, apply for any loan against it, or have any overdraft. The interest rate for investments made in tax-
saving fixed deposits is fixed but they do vary from bank to bank. So before investing, you must check with your bank for their offered rate of interest.
The income earned from investing in tax-saving fixed deposits is applicable for a tax deduction of Rs 150,000 in a year, under Income Tax Act (1961) section 80C. What’s assuring is that investments in tax-saving FDs are completely risk-free; no harm happens to your investment and your return is guaranteed.
Different banks like SBI Bank Tax Saving FD (6.50% for general citizens and 7.50% for senior citizens), IndusInd Bank Tax Saver Scheme (7.25% and 7.75% for general and senior citizens respectively), HDFC Bank Tax Saving FD (7% for general citizens and 7.50% for senior citizens), Canara Bank Tax Saving FD (6.70% and 7.20% for general and senior citizens, respectively), Axis Bank Tax Saving FD (7% for adult citizens and 7.75% for senior citizens), Bank of Baroda Tax Saving FD (6.50% and 7.50% for general and senior citizens, respectively), IDFC First Bank Tax Saving FD (7% for general citizens and 7.50% for senior citizens), Union Bank of India Tax Saving FD (6.50% and 7% for adult and senior citizens respectively), PNB Tax Saving FD (6.50% for general citizens and 7% for senior citizens) and IDBI Bank Tax Saving FD (6.50% and 7% for general and senior citizens, respectively) are offering impressive competitive rates of interest.
Read More:- Loan Against Property: How to Claim Tax Benefits For LAP Loan
Unit-Linked Insurance Plans (ULIPs)
United-Linked Insurance Plans (ULIPs) are a smart tax-saving investment scheme for getting the best of investments by creating substantial wealth to support your future plans and insurance.by offering you financial security to your dependents in case of any unfortunate incident. When you invest in a ULIP a part of it is taken as a premium for your insurance and another part of it is invested in a fund of your choice.
The return on investment in a ULPI is protected under the Income Tax Act of 1961’s section 80C. You can claim tax deductions of up to Rs 150,000 lakh on the premium paid, and carry debt-equity switches without paying any tax, also after maturity, you can avail of tax exemptions for a matured amount under section 10(10D).
ULIP offers dual benefits – one that of offering financial security to your family in case of any unwanted incident and the other benefits are of an investment. This unique feature of ULIP sets it apart from contemporary investment options. After maturity, you get to enjoy the benefits of both insurance and investment at the cost of one single investment. This sets it much ahead of other investment options and this is definitely an advantage.
ULIP is an essential help for realizing your long-term financial goals. Hence, while planning, make it a point to decide your premiums and investments for your ULIP. This can help you to ascertain the amount that you can expect as a financial cushion for your family and estimate your return on the investment.
Sukanya Samriddhi Yojana (SSY)
The Government of India’s Sukanya Samriddhi Yojana is a welfare module for financially securing the education prospects of a girl child. Once a girl becomes 10 years old you can open an SSY account for her in any recognized bank or post office. The account will mature after 21 years and the amount can be withdrawn to meet the higher education expenses of the girl. However, the account can be closed before the maturity date if the girl gets married anytime after she turns 18 years old. You can deposit between Rs 250 and Rs 150,000 every year but there’s a penalty of Rs 50 if you miss any year. The rate of interest that this account enjoys is 8.2%. The amount deposited enjoys tax deduction under section 80C of the Income Tax Act of 1961and the interest earned throughout the tenure is tax-free.
Know more about Sukanya Samriddhi Yojna(SSY).
Opening an SSY account is easy; a girl child’s natural or legal guardian can open an account for up to two girls but have to open one account for one girl. The guardian can operate the SSY account following the mentioned rules and enjoy the benefits.
Individual financial needs and goals may vary and this is why we have mentioned these different tax-saving investment options. You must assess your goals and check which one suits your purposes the most. The only way to grow your money is by investing, so make sure you take time out to ponder on the options and start investing right away.
