Best Tax Saving Investment Options in 2022

As another fiscal year comes to a close, taxpayers and investors are busy arranging their taxes and investments for the next fiscal year. Tax-saving investment options range from ELSS to PPF, where gains are only derived from interest. But what will be valuable and relevant in 2022? Let’s take a close look at tax-saving investment options for 2022, as well as see how they vary to make your decision simpler.

Best Tax Saving Investment Options

• ELSS (Equity-Linked Savings Scheme)

ELSS is simply a mutual fund investment with a tax-saving investment option. The fund primarily invests in stocks, which are believed to provide better returns but also have a higher level of risk.

As previously stated, the only benefit of ELSS over normal mutual funds is the tax-saving investment option. It is covered by Section 80C of the Income Tax Act of 1961, and you may claim a tax credit of up to Rs. 1.5 lakh for your investment in them.

Furthermore, it has a three-year lock-in period, and your earnings after this time are deemed long-term capital gains (LTCG) and are tax-deductible up to Rs. 1 lakh. Profits beyond Rs. 1 lakh will be taxed at a fixed 10% rate. You may invest in ELSS as a single amount or via a systematic investment plan (SIP).

• PPF (Public Provident Fund)

The public provident fund is a long-term investment offered by the government of India that would provide you with a retirement fund. The lock-in term here is 15 years, and you may open an account with as little as Rs. 500. Unlike equity-linked plans, the profit is exclusively from interest, which is now 7.1%.

PPF is under the same section 80c of the Income Tax Act of 1961, and your investment is tax-deductible up to Rs. 1.5 lakh.

• NPS (National Pension Scheme)

NPS, like PPF, is a retirement tax saving investment option that is market-linked. Investors may choose from a variety of funds depending on fund allocation, risk, and return potential. The option also depends on your age, as NPS fund options differ for people of different ages.

The success of your fund solely determines the reward from your NPS investment. Equity-focused NPS funds are known to provide better returns, but they also carry a higher level of risk. On the other hand, debt-based NPS funds offer reduced risk but a smaller potential return.

NPS also falls under the same 80C section. However, there is an additional Rs. 50,000 tax savings possibility under Section 80CCD (1B), bringing the total tax saving potential to Rs. 2 lakhs.

• ULIP (Unit-Linked Insurance Plan)

A ULIP is a life insurance policy that also includes an investing component. Life insurance is a must-have for your and your family’s safety, and adding an investing component to it makes it much more valuable. A portion of the premiums you pay in a ULIP policy goes toward your life insurance, while the remainder is invested in the fund. You may choose the fund here; however, availability varies by the insurance company.

• NSC (National Savings Certificate)

NSC is a tax-advantaged investment that may be made at post offices. These are low-risk investments in debt assets. They have a five-year maturity duration and are not eligible for recurring investments. When you invest in NSC, you will get an NSC investment certificate. You must make fresh investments every time you invest in an NSC.

Your NSC investments are tax-free, up to Rs 1.5 lakh per year. This interest is compounded annually and is taxed as “income from other sources.” Once it has matured, you will get your principal amount as well as the compounded interest for the five years. NSC’s current interest rate is 6.8% (in July 2022).

• Fixed Deposit (Five-Year Tenure)

A five-year fixed deposit is an 80C tax-saving investment option, allowing you to save up to Rs 1.5 lakh in taxes each fiscal year. Interest generated on a tax-saving fixed deposit is added to the investor’s income and taxed according to their income tax slabs. Fixed deposit interest rates vary by bank.

Premature withdrawal is not permitted in a tax-saving fixed deposit, as it is in a tax-saving PPF. You may invest in these fixed deposits at a bank or post office. Furthermore, the risk profile of fixed deposits is modest. However, you cannot make recurring investments in a fixed deposit. You must establish a new fixed deposit each time you want to invest.

• Mortgage Loans

A house loan displays how to save taxes in India five times over. There are three methods to save money on taxes by using house loans. You will save a lot of money as a result of this. Section 80C deductions permit you to reduce the debt repaid within the current fiscal year. The maximum deduction is Rs. 1,50,000.

Section 24 permits you to deduct any interest paid on your house loan up to Rs. 2,00,000. First-time buyers may receive a grant of up to Rs. 50,000 under Section 80EE. You may even get another home loan if you live in the house where you got your first one. The tax deduction for a second home loan is infinite.

What Should You Do to Save Taxes in 2022?

These investment alternatives will be relevant in 2022, and your pick should depend on your investment horizon and risk tolerance. For example, if you want to invest in a significantly shorter-term alternative for tax advantages, you may choose ELSS. ELSS, on the other hand, has a larger risk. If you are risk-averse, go with a PPF, which is not market-linked but has a longer tenure. The decision here should be a precise mix of your requirements and what these funds offer. Many choices, such as NPS, let you move to a new fund if your current fund is not working.

Conclusion

Many people rush to invest in tax-saving instruments at the end of the fiscal year to save money. But this negates the main goal of allowing such deductions, which is to urge you to manage your personal finances. As a result, the ideal time to make tax-saving investment options is at the start of each calendar or fiscal year. You can also save taxes and build wealth by investing regularly in many tax-saving avenues. But you must ensure that you know all tax-saving investment options and only invest in the suitable ones.

If you want to know more about tax-saving investment options, visit Piramal Finance for related blogs and explore their products and services.