Where to invest more to save on taxes?

I have already invested Rs 1.5 lakh to save tax under Section 80C. Where can I invest more? - Anonymous

If you've exhausted your Section 80C limit, consider investing in the National Pension System (NPS) Tier-I to avail a deduction of up to Rs 50,000 under Section 80CCD (1B) of the Income Tax Act. This deduction is in addition to the Rs 1.5 lakh limit of Section 80C and is exclusively available for NPS investments.

What is NPS?
The National Pension System is a retirement savings scheme introduced by the government in 2004. Its main objective is to promote investing for old-age pension.

Any citizen of India aged between 18 and 70 can open an NPS account and invest until the age of 75. The minimum investment amount is Rs 500.

The money invested in NPS gets locked in until the age of 60, with withdrawals before that age restricted to only specific situations. At age 60, up to 60 per cent of the total amount accumulated can be taken out, while the remaining 40 per cent must be used to purchase an annuity plan. As per a recent reform, you have the option to make phased withdrawals (instead of all at once) on a monthly, quarterly, half-yearly, or annual basis. (More on this here.)

Consider 'Active' investment choice
When investing in NPS, you'll be prompted to choose between two investment options: 'Auto' and 'Active.' While the 'Auto' option may seem convenient, as it automatically determines asset allocation based on age, its predefined allocations are quite conservative. That's because even its aggressive plan allows investing only up to 75 per cent in equities until only age 35, after which the equity allocation is automatically reduced every year.

Opting for the 'Active' investment choice allows allocating up to 75 per cent to equities even after age 35. This can be beneficial in building a larger retirement corpus.

Check out our NPS fund performance tool.

Also read: NPS gets an upgrade

This article was originally published on December 27, 2023.