Mumbai (Maharashtra) [India]: The new tax regime provides lower tax rates and fewer deductions, eliminating the need for investment in tax-saving schemes and insurance plans which may not be in symmetry with your financial goals. To calculate taxable income and tax thereon, one can use the New Tax Regime Calculator. However, whoever opts for this regime cannot claim several exemptions and deductions, like HRA, LTC, 80C, 80D, and many more.
In case you still want to save income tax, the top 10 tax-saving investments are as mentioned below.
Best Tax-Saving Investment Options & Plans for 2025
Before that, let us check the list of some of the best tax-saving investment options and plans for 2025 that can help individuals maximise tax benefits:
1.Life Insurance
Premiums paid towards life insurance policy are covered by 80C of the Income Tax Act, with a maximum of INR 1,50,000. Proceeds on maturity or death are exempt u/s 10D. In case a policy is surrendered within a time span of 5 years, deductions claimed are added to the total income and taxed accordingly.
The main objective of life insurance is to secure the financial future of the family members of the insured in their absence. Hence, it becomes important to check the claim settlement ratio as it is one of the important factors providing an idea of how an insurance company will meet the policyholder’s claims.
- Term Insurance
Term insuranceis one of the most affordable forms of life coverage. A term insurance plan provides a substantial amount of money at low premiums to the nominees in case of the policyholder’s untimely death. When choosing the best term insurance plan for yourself and your family, it is crucial to check the claim settlement ratio of the insurance provider as well.
A higher claim settlement ratio provides a signal of trust and indicates a better likelihood of the insurance provider paying the sum assured to your family members in case of your untimely and unfortunate death.
- Fixed Deposit
Get deduction u/s 80C of Income Tax Act by investing funds in tax saver fixed deposits. The deduction amount that can be claimed is INR 1,50,000 by investing in a tax saver fixed deposit. It provides a lock-in period of 5 years in case of a Fixed deposit, but interest thereon is taxable, ranging between – 5.5% to 7.5%.
- PPF (Public Provident Scheme)
Get your PPF account opened at a post office or some designated branches of public and private banks. Contributions to the PPF account earn a guaranteed rate of interest. Get deduction u/s 80C maximum up to INR 1,50,000 in a financial year.
- ULIP (Unit Linked Insurance Plan)
They are long-term investment products allowing one to choose equity, debts, or both, providing flexibility to switch funds to meet financial goals. One can save taxes u/s 80C and 10(10D).
- Senior Citizen Savings Scheme
It is a government-sponsored savings instrument for citizens above 60 years, providing a steady source of income for their post-retirement period along with substantial returns. The amount eligible for deductions u/s 80C is INR 1,50,000, applicable under the existing tax regime. The interest received is taxable according to the income tax slab.
Mentioned are the eligibility criteria to be met:
- Individuals should have age of at least 60 years and above
- Individuals above the age of 55 years can avail voluntary retirement
- Any individual above the age of 50 years employed in the defence sector of India
- Pension Plan
It is a type of life insurance that serves an end objective compared to other insurance plans, such as term and endowment plans, known as protection plans. Contribution towards a pension is covered u/s 80CCC of the Income Tax Act. The total deduction limit cannot exceed INR 1,50,000.
1/3rd of the accumulated pension amount is tax-free at the time of maturity, and the balance 2/3rd is considered as income and taxed at the marginal rate of tax. The amount is exempt upon the death of the beneficiary.
- Mediclaim
It covers pre and post-hospitalisation expenses, subject to the sum assured. As per section 80D, senior citizens are eligible to claim a tax benefit of INR 20,000 and others of INR 15,000.
- NPS
Any citizen of India between 18 and 60 years of age can invest in the scheme. It is a cost-effective investment as the fund management charges are quite low. The funds are managed under 3 different accounts: Equity, corporate bonds, and government securities. Investments in NPS are covered u/s 80CCD of the Income Tax Act. The total limit under this section, along with 80C and 80CCC, cannot go beyond INR 150,000.
- Tax Savings Mutual Funds
One can save income tax by investing in mutual funds that are tax-saving and are also known as Equity Linked Saving Scheme (ELSS). They invest the funds in the stock market and other assets for 3 years. This investment is covered u/s 80C of the Income Tax Act, a maximum of up to INR 1,50,000. Proceeds on death or maturity are tax-free u/s 10(D).
Conclusion
While there are many ways to save taxes, it is the wisest option to choose the option that provides you with the dual benefits of tax savings as well as the creation of wealth. One should plan one’s taxes in advance, look for the best way to optimise one’s taxes and utilise the tax exemption limit completely. With innovative investment options like life insurance plans, term insurance, ELSS, tax saver fixed deposit, and NPS, amongst others, you can lower your tax liability and build a long-term corpus. Effective financial and tax planning is not only about your deductions or exemptions, but it is also about making informed decisions that suit your life goals and needs.
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