As the end of the fiscal year approaches, paying employees will look for ways to optimize their tax liability. The Indian tax system provides several means for tax investment, mainly based on Section 80C and other related sections. Choosing the right tax-free option will help you reduce your taxable income while building wealth for your future. In this article, we explore the best tax investments of 2025 and how they can benefit individuals with a payroll.
Check us out before you start anything Tips for tax planning before the end of the fiscal year.
List of tax-free investments for payroll employees in 2025
#1 – Equity Link Savings Scheme (ELSS)
ELSS Mutual Funds offer double benefits of tax savings and wealth creation. These funds have a 3-year lock-in period, making them the quickest of all 80C options. Top ELSS Mutual Funds Historically, it has provided better returns compared to other tax-free means, making it a popular option among salaried employees looking for market-related growth. ELSS investments are subject to a deduction of up to £1.5 under Section 80C.
#2 – Public Provident Fund (PPF)
PPF is a government-supported savings scheme that offers tax-free returns. There is a 15-year lock-in period and partial withdrawals are permitted after 5 years. The current interest rate is approximately 7.1% per year, and investments in PPFs are subject to a tax deduction of up to Rs 1.5 crore under Section 80C.
#3 – National Pension System (NPS)
NPS is a retirement-centric investment option that offers tax benefits based on multiple sections.
Donations up to £1.5 under Section 80C
£50,000 additional deduction based on section 80ccd (1b)
Employer contributions up to 10% of salary (basic + DA) are deductible based on section 80ccd(2).
NPS investments are partially taxed on withdrawals, but offer a disciplined approach to retirement savings with the benefits of additional tax credits.
#4 – Fixed tax cut deposits (FDS)
Tax-free FD has a 5-year lock-in period and offers a guaranteed return. Interest earned is taxable, but major investments qualify for a deduction of up to 1.5 lakh under Section 80C. This option is suitable for risk aversion investors who prioritize capital safety over high returns.
#5 – Sukanya Samriddhi Yojana (SSY)
For those with girls, SSY is a great investment option. Contributions are subject to a tax deduction of up to £1.5 under Section 80C, with maturity income being tax-free. This scheme offers higher interest rates compared to traditional fixed deposits, ensuring the long-term financial security of children’s education and marriage.
#6 – Life insurance fees
Premiums paid to life insurance, including term plans, are subject to a deduction of up to 1.5 lakh under Section 80c. The term plan does not offer returns, but provides financial protection to dependents in the event of unfortunate events.
#7 – Senior Savings Scheme (SCSS)
SCSS is an attractive tax saving investment for individuals over the age of 60. It offers a higher interest rate than FDS and PPF, and has a five-year tenure that can be extended for another three years. This investment qualifies for a tax deduction of up to £1.5 under Section 80C and is ideal for retirees.
#8 – National Savings Certificate (NSC)
The NSC is a government-supported savings tool with a five-year lock-in period. Interest earned is compounded annually and qualifies for a tax deduction of up to 1.5 lakh under Section 80C. Interest is taxable, but offers a fixed, risk-free return.
#9 – Post Office Deposit (5 Years)
The five-year post office deposit is another safe investment option eligible for a deduction of up to £1.5 under Section 80C. Interest rates are fixed by the government and are generally higher than bank FDs.
#10 – Repayment of principal on mortgage
Major mortgage repayments are subject to a maximum of 1.5 lakh deduction under Section 80c. This makes buying a home tax-efficient decision while helping to create wealth. Additionally, the interest portion of the mortgage is charged as a deduction under Section 24(b) and offers additional tax benefits of up to £2 per year.
Based on FY2025-26 New Income Tax Slab, Check Tax Savings in Minutes.
Conclusion
Choosing the right tax-saving investment depends on your individual financial goals, risk appetite, and investment duration. ELSS offers market-related growth with shorter lock-in periods, while PPF and SCS offer stable returns. NPS is great for additional tax incentives, while FD, NSC, and SSY address specific needs. Salary employees should strategically plan their tax-free investments to maximize profits while ensuring long-term wealth accumulation.
Before investing, we recommend assessing your liquidity needs and risk tolerance to choose the most appropriate tax-free option.
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