Investment vs Income Tax


Best of all the options is Provident Fund. Amount invested, interest and maturity is all exempted from income tax. Interest amount compounds annually. As a private employee, you would already have EPF (Employee Provident Fund) to which you are contributing through your employer involuntarily every month, you can also voluntarily (VPF) increase the contribution based on your needs, you can check with your employer (finance team) on the same.

There is also PPF (Public Provident Fund) which is provided by the major banks directly to individuals. Advantage of PPF is that the contribution could be flexible unlike EPF where the amount is constant every month. Minimum contribution could be as low as Rs. 500 per annum while maximum is 1.5L. Only one PPF account is allowed per individual. PPF also has the advantage over EPF that it is not impacted by your job change. Lock in Period is 15 years while loan (after 3 yrs) and withdrawal (after 7 yrs) options are available. Interest rate is set every year by govt of India.

While life insurance is critical, it is not an investment. ELSS/Mutual Fund is a good option to grow wealth but contributions are at market risk and other savings bonds are not as flexible as PPF. NPS also has links to market. Home loan is not an applicable investment option for everyone.

Contribution to PPF is recommended irrespective of the need to utilize the 80C limit, since it is a much needed risk free retirement corpus for individuals.


You can also invest 1.5 lakhs per year in tax-saving schemes such as Equity Linked Savings Scheme (ELSS). ELSS has a lock-in period of 3 years. ELSS funds are tax saving mutual funds, in which majority of the funds are invested in ""equity schemes"".

Edited:Please note Long-term Capital Gains (LTCG) tax are applicable on ELSS.


to minimize IT under 80C, which investment is most beneficial?

All are same. You can invest into any of the instruments under 80C and investments upto 1,50,000/- are deducted from Income. Depending of you tax bracket; the tax savings is 10% to 33%.

See the link on Income Tax India

Section 80C provides deduction to Individual/HUF in respect of various items like life insurance premium, investment in Public Provident Fund, investment in NSC, investment in notified units of mutual funds, deposit in Sukanya Samriddhi account, investment in mutual funds, amount paid for tution fees, repayment of principal component of housing loan, investment in Post Office Time Deposit Scheme, Senior Citizens Saving Scheme, etc.