Best Savings Plans With Tax Benefits Online In India In 2024

Why Do You Need a Savings Plan?

A savings plan can be beneficial for several reasons. Some such reasons are as follows:

Promotes savings:
As the name implies, savings plans assist you in saving for your financial goals. You can accumulate a corpus for your financial needs by investing in savings plans.
Products are low-risk:
Many savings plans, except those linked to market performance, provide assured returns on investments. Such plans are not exposed to market volatility allow you to build a safe and steady corpus without the risk of volatile markets.
Adds to the corpus:
The returns offered under savings plans add to your investments and help them grow. This helps you accumulate and get a good corpus on maturity or even during the plan’s tenure for your financial needs.
Offer insurance cover:
If you choose savings plans offered by life insurance companies, you can enjoy financial protection against the risk of premature demise. Such plans pay a death benefit if the life assured passes away during the policy term. This helps the family meet their financial needs even when the breadwinner is not around. Moreover, the family can use the death benefit to fulfil the goals which you could not fulfil.
Loan facility:
Savings plans are a type of asset. They can be used as a collateral security to get a loan. Moreover, life insurance savings plans also offer policy loans against the available surrender value. This loan provides you with the funds you require without the need to exit the policy.
Tax benefits.
Finally, the tax benefits provided by savings plans are the icing on the cake. The following are the advantages that you receive:
1. Section 80C of the Income Tax Act of 1961 allows for a deduction for investments made in different types of savings plans. The maximum deduction permitted is ₹1.5 lakhs^[1]. Common savings plans which allow the benefit under Section 80C include life insurance savings plans, 5-year fixed deposits, PPF, NPS, etc.
2. Under life insurance savings plans, the death benefit received is allowed as a tax-free benefit^[2].
3. Many savings plans also offer tax-free maturity benefits. For instance, the maturity proceeds from life insurance plans are allowed as a tax-free benefit under Section 10(10D)^[3]

Types of Savings Plans

When it comes to life insurance, there are two types of saving plans. They are as follows:

Endowment plans
Endowment plans are savings-oriented life insurance plans that offer a death benefit in the case of the life assured’s death during the policy term. Alternatively, if the life assured survives the policy term, a maturity benefit is paid. This money-saving plan thus provides financial security and helps in creating a corpus for your goals. Moreover, if the plan offers a bonus, your corpus can also grow.
Money back plans
Money-back plans provide survival benefits during the policy's tenure. These payouts are paid at predetermined intervals and offer liquidity to policyholders. For example, suppose you acquire a money-back policy that provides survival benefits every five years. In a 20-year plan, you would receive a lump sum payout in the fifth, tenth, and fifteenth policy years. On maturity, the assured balance is paid. However, in the event of death during the term, the whole death benefit is paid regardless of any money-back payments previously received.

There are various kinds of savings plans on the market in addition to life insurance savings plans. Some of them include the following:

Public Provident Funds (PPF):
The PPF is a government-backed saving scheme that provides guaranteed returns and long-term investment. Tax implications - PPF investment is eligible for a deduction under Section 80C. It also offers offers tax-free interest and maturity proceeds^[4].
National Savings Certificate (NSC):
The NSC is a fixed-income saving scheme accessible for investment through the post office. Tax implications - The investment and interest earned in the first four years (which are reinvested) are deductible under Section 80C. Interest earned in the fifth year is taxed according to your income tax slab rates.^[5].
Kisan Vikas Patra (KVP):
A small-saving option with a 9.5-year duration and assured investment returns. Tax implications - Section 80C allows for the deduction of investments. However, the interest you earn is taxed at your income tax rate^[6].
Sukanya Samriddhi Yojana (SSY):
A savings initiative for girls was introduced by the government.
Tax implications - The amount invested is eligible for an exemption under Section 80C. The interest earned and maturity benefits paid are both tax-free^[7].
Employee Provident Funds (EPF):
Salaried employees of qualified businesses can benefit from the EPF system, which helps them plan for retirement. Investments can be claimed as a tax deduction according to Section 80C up to Rs.1.5 lakhs, subject to certain limits^[8]. The interest received is likewise tax-free, subject to certain criteria^[8].
Fixed Deposits (FDs):
Preset deposits are used to save a lump sum amount over a certain period at a preset interest rate. Tax aspect - Investment in 5-year deposits qualified for tax deduction under Section 80C up to Rs. 1.5 lakhs^[9]. If you are under the age of 60, whatever interest you earn is taxed. Senior citizens can claim tax breaks on interest earnings up to Rs.50,000 under Section 80TTB^[10].
National Pension System (NPS):
The NPS system is a market-linked plan designed to accumulate funds for retirement Tax implications - Investments in the NPS system are deductible under Section 80CCD (1) up to Rs. 1.5 lakhs^[11]. Section 80CCD (1B)^[11] allows for an additional deduction on investments. At maturity, 60% of the transferred corpus is tax-free, while annuity distributions are taxed according to your slab rates^[11].

Features of Savings Plan

Some of the key aspects of savings plans are as follows:

Most savings plans offer affordable investment options so that you can save per your needs
The returns offered are usually assured, except in some cases. For instance, fixed deposits, PPF, SSY, etc., offer assured returns. However, life insurance savings plans with bonus additions might not guarantee the amount payable on death or maturity as the bonus is not guaranteed.
Some savings plans require regular investments while in others you can invest per your suitability. For instance, under fixed deposits, you can invest in a lump sum but if you choose PPF or life insurance savings plans with regular premium payment options, you will have to invest regularly over the chosen term.
Some saving plans offer investment options, allowing policyholders to choose how their savings are managed (e.g., NPS).
Focused on goals savings plans are offered to help you prepare for specific goals. For example, you can choose kid plans to safeguard your child's financial future.
Some plans can allow a variable tenure based on your investment horizon.

Features of Savings Plan

How do you choose the right savings plan?

Here are some guidelines for selecting the best savings plan –

Assess your financial goals: Determine what you hope to achieve with your savings plan.
Evaluate your risk tolerance. Consider how comfortable you are with risk and volatility. If you are risk-averse, you may select a saving plan that provides a guaranteed return or a lower-risk investment alternative. If you are willing to take on additional risk, you could choose a plan with a higher potential return.
Select a savings plan that provides good returns to help you create a good corpus.
Consider your income and expenses: Calculate how much you can afford to save each month. Make sure you understand your financial obligations, including debts, bills, and living expenses.
Ensure the savings plan's benefits align with your financial needs.
Assess the tax benefits of savings plans and choose plans which give maximum tax savings.

Who should buy a Savings Plan?

A savings plan can help people save for certain financial goals, and life insurance savings plans also provide financial protection against unexpected events. As such, savings plans can be suitable for the following types of individuals:

Young professionals who have recently started their jobs can invest in savings plans to build up a saving habit and start saving for their goals from an early age
Families with dependents: Parents who want to ensure that their children's education, marriage, or other future expenses are paid for can use savings plans to create a corpus.
Retirees: People who desire to augment their retirement income, create a consistent income stream, and leave a legacy for their loved ones can invest in savings plans
Individuals with high-risk jobs: Those who work in high-risk industries such as construction, aviation, or healthcare may benefit from a savings-oriented insurance plan to ensure financial security for their families.
Individuals with large debts, such as mortgages, auto loans, or credit card debt, may seek a savings-oriented insurance plan to ensure that their loved ones are not burdened with debt payments in the event of their death.
Individuals who desire to develop an emergency fund: A savings insurance plan can help you prepare for unforeseen needs like medical crises, car repairs, or house maintenance.

How to Compare Saving Plans in India?

When comparing the best saving plan in India, it is important to consider a variety of variables to ensure that you select a plan that aligns with your financial objectives, risk tolerance, and personal circumstances. Following are a few steps to consider while comparing the best saving plan in India:

Determine your goals. Identify your financial goals, such as saving for a specific purpose, establishing an emergency fund, or protecting your family.
Research: Look for the different options for savings plans in India. Choose an option that matches your needs and requirements.
Comparing returns – Check the returns offered by different savings plans. Choose a plan offering the highest possible return for maximum savings.
Compare plan features: Evaluate the features of the different savings plans, i.e., the investment amount, investment tenure, expected returns, liquidity, risk, etc.
Tax benefits – Compare the savings plans on their tax angle. Check the tax implication on investment, returns and maturity proceeds.

Conclusion

In conclusion, money savings plans in India allow you to inculcate a savings habit and save for specific goals. You can choose short or long-term savings plans depending on your goals and financial needs and grow your savings with the returns offered.

Compare and choose the best saving scheme that aligns with your needs. There are different types of savings plans each with its own set of features and benefits. You can make an informed decision by evaluating these plans and taking into account their circumstances, risk tolerance, and financial aspirations.