Tax Saving Investment schemes: Government of India has laid down certain ways through which taxpayer can reduce their Income tax liability while earning high return. One of these measure is Investment in Government notified schemes. These investment helps an individual in saving as well as growing his wealth as these investments can provide a good rate of return. It will be more beneficial for the individual to start investing as early as possible.
Section 80C of Income Tax Act, 1961, list down some investment schemes to save taxes. The maximum limit of deduction available u/s 80C is 1,50,000. The deductions are available to only an individual or HUF.
Tax Saving Investments
| Investment | Returns (Approx) | Minimum Lock in period |
| Public Provident Fund (PPF) | 7.1% | 15 years |
| Tax Saver Fixed Deposit | 3.5%- 8% | 5 years |
| Sukanya samriddhi yojna | 7.6% | When girl reaches 21 years of age or gets married whichever is earlier. |
| National Saving Certificate | 7% | 5 years |
| Equity Linked Savings Scheme (ELSS) Fund | 8-10% | 3 years |
| Employee Provident Fund(EPF) | 8.80% | Not taxable if withdrawn after 5 years |
| ULIP (Unit linked Insurance Plans) | Returns vary from plan to plan | 2 years |
| Senior Citizen’s Saving Account Scheme | 7.4% | 5 years |
Read Also: National Pension Scheme (NPS) in India
1. Public Provident Fund (PPF)
PPF is long term saving cum tax saving instrument. It helps the investors to create financial cushion post retirement. The contribution made towards PPF, the interest earned on that investment and the maturity proceeds all are tax exempted. Thus it is considered as one of the best tax saving investment scheme. It is backed by the government and thus considered the safest. Minimum investment limit in this scheme is Rs.500. Lock in Period is 15 years, but can be further extended by 5 years. Partial withdrawal allowed after 7 years.
2. Tax Saver Fixed Deposit (FD)
Tax Saver Fixed Deposit (FD) with a fixed tenure of 5 years. Bank FD offers a guaranteed return on investment to the individuals. The risk is low in Bank FDs and mostly all the commercial banks provide this service. Interest on FDs is exempt for senior citizens upto Rs.50,000. The maturity value is exempt as it is already taxed.
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3. Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana (SSY) is a small deposit scheme for the girl child launched as a part of the ‘Beti Bachao Beti Padhao’ campaign.
Minimum Amount- Rs. 250
Interest accrued and maturity amount – Exempt
4. National Saving Certificate
Post offices offer this fixed income investment scheme. Risk is minimal as the scheme is initiated by government. Interest received from NSC is taxable but since the interest is reinvested every year it is allowed as deduction. At the time of withdrawal the interest will be taxable in Other Sources.
Read Also: Tax on Interest Income – Saving Account, PPF, Fixed Deposits, bonds, R/D
5. Equity Linked Savings Scheme (ELSS) Fund
ELSS funds are equity funds that invest a major portion of their corpus into equity or equity-related instruments. Since lock in period is 3 years the income that you earn under this scheme will be considered Long Term Capital Gain and will be taxed at 10% (only if income is above Rs. 1 lakh).
6. Employee Provident Fund (EPF)
EPF is a retirement benefit scheme that is available to salaried employees. In this scheme both employer and employee contribute some amount in the account. Employee can claim deduction for his contribution and employer’s contribution is exempt upto 12% of Basic salary and Dearness Allowance (DA).
Tax Benefit – Entire PF Balance and interest is tax free, if withdrawn after continuous service of 5 years.
Read Also: Income Tax Rate For AY- 2020-2021/ FY- 2019-2020
7. Unit linked Insurance Plans(ULIP)
ULIP is a combination of insurance and investment. Here policyholder can pay a premium monthly or annually. A small amount of the premium goes to secure life insurance and rest of the money is invested just like a mutual fund do.
Tax Benefit- Investment and withdrawals on maturity amount are exempt.
8. Senior Citizen’s Saving Account Scheme
Senior Citizen’s Saving Scheme (SCSS) is a government backed tax saving investment scheme designed to provide financial safety to the senior citizens (above 60 years). This scheme can be availed through Commercial banks and Indian Post Office. Minimum Deposit allowed in this scheme is Rs. 1000. Interest on SCSS is fully taxable.
Read Also: NPS Tier II Tax Saver Scheme 2020 – Benefits
There are other investments as well that help you in saving tax. However, before going for any investment one must compare other factors like liquidity, tenure, returns and risk.
The author of the above article is Manav Khanna.
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