So, it's that time of the year again. Your inbox is flooded with reminders about saving taxes before the deadline, and your HR has probably sent several emails about submitting investment proofs too.
If you're a smart investor, or want to be one, you know tax saving isn’t a one-day task; it requires some planning. Ideally, you shouldn’t just throw money into any financial product at the last minute. Focus should be to grow your wealth while reducing your tax burden.
Wondering how to make tax-saving investments that actually make sense? You’re in the right place. Let’s break it down.
First, understand how taxes work
As a salaried professional or business owner, you will either fall under the new or old tax regime. With the Union Budget 2025 bringing in major tax relief, especially with zero tax liability on income up to ₹12.75 lakh, it’s important to do the math first.
The new tax regime has seven slabs, starting at 0% for income up to ₹4 lakh and going up to 30% for income above ₹24 lakh. But if you’re sticking to the old tax regime, you can still claim deductions and exemptions to bring down your taxable income. Here are some options you can consider.
1. ELSS– Tax-saver for risk-takers
Equity Linked Savings Scheme (ELSS) funds are a favorite among young investors as they offer a combination of tax savings and high return potential. Unlike traditional tax-saving options like FDs, ELSS are market-linked, giving them the potential to generate much higher returns over time.
In fact, data from the past decade shows that ELSS funds have delivered an average annual return of 14.24% over any three-year period. This makes them an attractive choice for investors willing to take on some risk for better growth. Plus, they qualify for deductions of up to ₹1.5 lakh annually under Section 80C.
Since ELSS funds are subject to market fluctuations, financial experts often recommend investing through Systematic Investment Plans (SIPs) instead of a lump sum. This approach helps average out market volatility and reduces the risk of investing at a high point. A well-balanced ELSS portfolio should include a mix of large-cap, mid-cap, and small-cap stocks. While risks exist, the possibility of earning 10-12% annual returns (or even higher in bullish markets) makes ELSS a solid choice for tax-savvy investors.
2. PPF- The safe bet
If you’re someone who prefers safety over high returns, the Public Provident Fund (PPF) remains a safe bet. Offering an interest rate of around 7-8% (varies quarterly) and a triple tax exemption status (EEE- Exempt-Exempt-Exempt), PPF is an excellent choice for those who want a risk-free investment with guaranteed returns.
One of the biggest advantages- the interest earned is completely tax-free, unlike FDs. Plus, the principal, interest and maturity amount are all exempt from tax. However, there’s a 15-year lock-in period, making it more suitable for long-term financial goals like retirement or a child’s education.
Though PPF lacks liquidity in the initial years, partial withdrawals are allowed from the 7th year onwards, and you can take loans against your balance if needed. It’s best suited for risk-averse investors who want stable, government-backed returns without worrying about market fluctuations.
3. Women and wealth
Over the years, more women have been stepping into entrepreneurship and are also becoming more active investors. According to an AMFI-Crisil study, women now account for 33% of total individual investors’ AUM, and one in four mutual fund investors is a woman. That’s a strong indicator of the growing shift toward financial independence.
If you're a woman entrepreneur, the Indian tax system offers some relief to simplify filings and ease financial management. For instance, the Presumptive Taxation Scheme (Section 44AD) makes tax filing much easier. If your business relies on digital transactions, you only pay 6% tax instead of 8% on cash transactions. Plus, the turnover limit for businesses has been raised to ₹3 crore, allowing for more flexibility.
Higher education is another area where smart tax planning can help. If you're pursuing a degree in India or abroad, Section 80E of the Income Tax Act lets you claim a 100% deduction on education loan interest payments for up to 8 years, without any upper limit. That means significant savings while you focus on building your career.
4. NPS- The retirement hack
The National Pension System (NPS) is a long-term retirement investment that offers up to ₹2 lakh in tax deductions, ₹1.5 lakh under Section 80C and an additional ₹50,000 under Section 80CCD(1B). If you're in a high tax bracket, NPS can be a valuable addition to your portfolio, helping you lower your taxable income while building a retirement corpus.
Infact, there’s a key advantage of NPS over Employee Provident Fund (EPF). The employer contributions to NPS qualify for an additional deduction under Section 80CCD(2), which can further reduce taxable income. EPF still remains a strong choice for those prioritizing stability and guaranteed returns, as it offers fixed, tax-free interest.
5. ULIPs– Insurance + Investment + Tax Benefits
If you want to combine life protection with wealth creation, Unit Linked Insurance Plan (ULIP) is a great option. They allow you to invest in a mix of equity and debt funds while ensuring financial security for your family. The premiums paid are eligible for tax benefits under Section 80C, and maturity proceeds are tax-free under Section 10(10D) if the annual premium is within the prescribed limits.
One of the standout options in this category is HDFC Life’s Click 2 Invest. What makes it special?
Get fund value at maturity or in periodical installments based on your needs.
Make partial withdrawal from funds to meet financial emergencies if any.
Flexibility to save regularly, for limited period of 5, 6, 7, 8, 9, and 10 years or pay once under Single Pay.
When it comes to tax-saving investments, there’s no one-size-fits-all approach. The key is to align your choices with your financial goals, risk appetite, and long-term plans. Whether you prefer the security of traditional options or the growth potential of market-linked investments, planning ahead is what truly makes a difference.