What are the investment opportunities to save taxes?
As already stated above, the government has granted certain tax deductions on amounts invested in specified instruments under section 80C of the Income Tax Act, 1961. The tax savings in these instruments would be Rs. 1.5 lakh per fiscal year and is only available if you opt for the old tax regime. In particular, those who opt for the new tax system, which offers favorable tax rates, will have to forgo many of the tax deductions and exemptions available under the old tax system.
Meanwhile, some of the most popular tax saving instruments include Employee Provident Fund (EPF), Public Provident Fund (PPF), term deposits (tenure period of 5 years or more ), life insurance policies, equity linked savings plans (ELSS) funds, the National Pension Plan (NPS) and other retirement plans. The investment in these tax savings measures does not simply disappear. In effect, you are creating an asset that produces money while saving taxes. It should be noted that even if you invest more money in any of the above tax saving options, your maximum deduction from taxable income will still be just Rs. 1.5 lakh. However, investing in the NPS can earn you additional Rs. deduction of 50,000, bringing the total amount of tax deduction to Rs. 2 lakh.