Tax-saving investments play a crucial role in managing your personal finances. In India, government-backed schemes offer a range of options for individuals looking to reduce their tax burden while also building a secure financial future. These schemes provide a systematic way to save on taxes and create wealth simultaneously.
What are government schemes for tax saving?
Government tax-saving schemes are investment options that help you reduce your taxable income, thus lowering the amount of tax you owe. These schemes are designed to encourage savings and investments for long-term financial security. By investing in these schemes, you can not only save on taxes but also benefit from various financial gains like interest, capital appreciation, and more.
Popular tax-saving schemes in India
Some of the top tax-saving schemes offered by the Government of India, with examples are as follows:
Public Provident Fund (PPF)
The PPF is one of the most popular government-backed savings schemes in India. It offers a fixed interest rate, and the amount invested is eligible for tax deductions under Section 80C of the Income Tax Act. PPF accounts have a 15-year maturity period, which makes them ideal for long-term wealth accumulation.
Example: Mr. Sharma, a salaried professional, has been putting ₹1.5 lakh into his PPF account every year. This not only reduces his taxable income by up to ₹1.5 lakh under Section 80C, but all of his returns are tax-free. Imagine watching your investment grow every year without worrying about taxes at any stage.
Why choose PPF?
With PPF, you get the rare EEE (Exempt-Exempt-Exempt) benefit—meaning there’s no tax when you invest, earn, or withdraw. It’s a secure, long-term option for anyone wanting a strong foundation for their future.
The term EEE (Exempt-Exempt-Exempt) status is rare in tax-saving schemes because it offers a unique advantage:First exemption: No tax on the initial investment.
Second exemption: No tax on earnings or growth of the investment.
Third exemption: No tax on withdrawals or maturity proceeds.
How to start: To begin with, Public Provident Fund (PPF) accounts can be opened at any post office or designated bank branch. You will need to provide documents like proof of identity (Aadhaar, PAN), proof of address, and passport-sized photographs. Once the account is opened, you can start by depositing a minimum of ₹500, with a maximum of ₹1.5 lakh in a year. Some banks also offer online services to manage your PPF account, allowing easy access to track balance and contributions.National Pension System (NPS):
NPS is perfect for those thinking ahead about retirement. It allows flexibility in how you allocate your investments (across equity and debt), which can be an advantage in growing your retirement fund based on your comfort with risk.
Real-life example
Meet Mrs. Verma, a self-employed consultant. She’s been putting ₹1 lakh annually into NPS, reducing her taxable income and securing her retirement. With the extra ₹50,000 deduction under Section 80CCD(1B), she effectively saves up to ₹1.5 lakh on her taxable income, all while building a comfortable retirement corpus.
Why choose NPS?
Besides tax-saving on contributions, NPS allows you to tailor your investment strategy. It’s versatile, tax-efficient, and especially valuable if you want an added cushion for retirement beyond your primary savings.
How to start: For the National Pension System (NPS), you can register online through the eNPS portal or visit a bank that offers NPS services. The process involves linking your Aadhaar and PAN, and choosing between active or auto investment choices. A minimum contribution of ₹500 is required for a Tier I account, and once the account is created, you will receive a Permanent Retirement Account Number (PRAN) that you can use to manage your contributions.
Employee Provident Fund (EPF)
EPF is a structured retirement scheme for salaried individuals, where both the employee and employer contribute, making it a disciplined way to save. Contributions qualify for tax deductions under Section 80C, and the government oversees the fund, adding a layer of security.
Real-life example
Ms. Rina, a young professional, sees 12% of her basic salary deducted monthly and invested in her EPF account. Over time, these contributions grow tax-free, providing her with a substantial sum upon retirement. The best part? If she holds onto it until then, she won’t pay tax on her final maturity amount either.
Why choose EPF?
EPF offers built-in, secure savings with regular contributions. It’s a tax-savvy option for salaried employees who want to plan for their future in a low-risk, structured way.
How to start: For Employee Provident Fund (EPF), if you're a salaried employee, your employer will automatically open an EPF account for you. The employer contributes an equal amount (12% of your basic salary) to your EPF, and you can manage it through the EPFO website or member portal. If you're self-employed, you can contribute voluntarily under the Voluntary Provident Fund (VPF) scheme.Sukanya Samriddhi Yojana (SSY)
SSY is designed specifically for parents wanting to secure their daughters’ futures. It provides high returns and tax benefits under Section 80C, making it a perfect blend of savings and tax efficiency.
Real-life example
Mr. and Mrs. Rao, proud parents of a 5-year-old girl, have committed to investing ₹1.5 lakh every year in SSY. This amount not only helps them reduce taxable income but also builds a fund for their daughter’s education or marriage. The attractive interest rate means their contributions grow faster than many other safe options.
Why choose SSY?
With SSY, parents get peace of mind knowing they’re building a future for their daughter. Its high returns and full tax exemption make it one of the best long-term options for family-focused savings.
How to start: Opening a Sukanya Samriddhi Yojana (SSY) account requires visiting a post office or a bank that participates in the scheme. The account must be opened in the name of a girl child under 10 years of age. You will need the child’s birth certificate, proof of identity for the parent/guardian, and photographs. The minimum deposit is ₹250, with a maximum contribution of ₹1.5 lakh annually. Once the account is opened, you can make deposits through banks or post offices, and the contributions earn tax-free interest.Senior Citizen Savings Scheme (SCSS)
For those over 60, SCSS offers a combination of safety, regular income, and tax-saving. It’s geared toward senior citizens who want steady income from their savings, with interest paid quarterly.
Real-life example
Mr. Mehta, a retired teacher, invested ₹5 lakh in SCSS. Every quarter, he receives interest payments, which not only supplement his pension but also come with tax benefits. For him, SCSS is a stress-free, government-backed way to maintain financial stability post-retirement.
Why choose SCSS?
SCSS is reliable and easy to manage, making it ideal for retirees who want financial security without any surprises. The tax benefits under Section 80C add to its appeal for senior citizens aiming for a stable post-retirement life.
How to start: To start investing in the Senior Citizen Savings Scheme (SCSS), you need to visit any authorised bank or post office. It is available at public sector banks like SBI, PNB, and ICICI Bank, as well as post offices across India. You will need to provide proof of age (such as a birth certificate, passport, or Aadhaar card), proof of identity and address (like a PAN card and Aadhaar), and a passport-sized photograph. The minimum investment amount is ₹1,000, and you can invest up to ₹15 lakh (₹30 lakh for joint accounts). The account can be opened in a single or joint name, and the interest is paid quarterly, although it is taxable. While you will need to visit the bank or post office to open the account, you can manage your investments online after the account is set up. The SCSS account has a tenure of 5 years, which can be extended for another 3 years upon maturity.
How these schemes help you save taxes
Government tax-saving schemes can help you reduce your taxable income by providing deductions under Section 80C of the Income Tax Act. This section allows individuals to claim deductions of up to ₹1.5 lakh on eligible investments made in these schemes. By utilising these schemes, you can lower your overall tax liability and keep more of your earnings.
Additionally, many of these schemes provide interest or returns that are either partially or fully exempt from tax, depending on the scheme. For example, the interest earned on PPF and tax-free bonds is exempt from tax, allowing you to grow your savings without worrying about tax deductions on the returns.
Sections of the income tax act for tax savings
Let us look at some essential sections of the Income Tax Act that can help you maximise savings:
Section 80C: Deduct up to ₹1.5 lakh by investing in schemes like PPF, EPF, and SSY. This is one of the most popular ways to reduce taxable income.
Section 80D: Get deductions on health insurance premiums, including for schemes like Ayushman Bharat.
Section 80CCD: For NPS contributions, an extra deduction of up to ₹50,000 can be claimed here, making it a powerful option for retirement savings.
The future of tax saving in India
As the government continues to push for financial literacy and encourage long-term savings, we can expect more diverse options to become available for tax-saving purposes. While traditional government schemes will remain essential, newer investment vehicles and schemes, such as those in the mutual fund sector, may also see growth in the coming years.
For example, the National Pension Scheme (NPS) offers tax benefits and can be a part of your retirement planning strategy. As the financial market matures, there may also be more tax-efficient options available, combining the safety of government-backed schemes with higher growth potential.
Choosing the right investment horizon
SCSS offers a 5-year term, which is practical for retirees looking for short- to mid-term income.
PPF and NPS provide growth over a longer term, aligning well with the goals of working individuals.
Understanding these timelines can help you align investments with life stages—whether it’s planning for education, retirement, or wealth building.
Balancing tax savings with financial goals
While tax-saving is important, it’s best to align these schemes with your broader financial goals. For example, if you’re looking for retirement stability, EPF or NPS might be better suited than other options. Balancing tax benefits with life goals, like funding education or securing post-retirement income, will help you get the most from your investments.
Is it time to start investing in government tax-saving schemes?
Investing in government tax-saving schemes is a wise choice if you’re looking for secure, low-risk options that provide both tax deductions and long-term wealth-building benefits. Whether you’re just starting your career or planning for retirement, these schemes can help you save on taxes and build financial security.
Before you choose a scheme, it’s important to consider factors like your investment horizon, risk tolerance, and financial goals. Government-backed schemes are ideal for conservative investors who prefer stability and safety, but they may not offer the high returns that come with more aggressive investments.
By strategically investing in these schemes, you can not only save on taxes but also build a financial cushion for the future.
