Is your take-home income way short of your gross earnings? The heavy tax imposition may just be the reason! Invest in a tax saving scheme to ensure you take home a reasonably higher amount. However, which tax saving options to pick as there are many? Ideally, you should choose the one that is easy to access, has the required flexibility and stays aligned to your financial goals. To make it easier, we have cut the list of Best tax saving schemes to eight best ones – ELSS, PPF, NPS, ULIP, SSY, SSCS, Tax-saver FD and NSC – from which you can select your favourable tax saving scheme.
These tax saving schemes come with a certain lock-in period, which means you can’t withdraw before the specified time. Plus, they offer tax exemption upto ₹1.5 lakh in a financial year under Section 80C of the Income Tax Act. The extent of 80C deduction will, however, depend on the exact tax saving investment made in a year. If the calculations are to be taken into account, one can save as much as Rs. 46,800 in taxes, investing in any of these 80C products. While there’s a similarity between these products, there are differences too and that would probably help you choose the RIGHT alternative.
From April 1st, both salaried and non-salaried individuals can begin investing in tax-saving plans. The earlier you begin tax investing, the greater the potential rewards over time. Tax exemptions and the ability to earn tax-free income are the various benefits offered to smart investors. Take a look at the tax-saving options listed below and pick the one that best suits your needs.
Tax Saving Schemes with their Lock-in Period and Returns
|Tax Saving Scheme||Lock-in Period||Expected Returns|
|ELSS - Equity Linked Saving Scheme||3 years||15% - 18%|
|PPF - Public Provident Fund||15 years||7% - 8%|
NPS - National Pension Scheme
|Valid till the time of retirement||12% - 14%|
|ULIP - Unit Linked Insurance Plan||5 years||Varies from plan to plan|
|SSY - Sukanya Samriddhi Yojana||N/A||7.6%|
|SCSS - Senior Citizen Saving Scheme||5 years||7.4%|
|Fixed Deposit||5 years||6% - 7%|
|NSC - National Savings Certificate||5 years||7% - 8%|
Don’t Want to Limit Your Earnings? ELSS Could be the One to Go with!
One of the best in the business, the Equity-linked Savings Scheme (ELSS) is a tax saving scheme of mutual funds that offer scope for massive capital appreciation by investing your money in equity and equity-related instruments. It comes with a lock-in period of 3 years but doesn’t have any tax saving investment limit like most of its 80C counterparts. So, the scope for wealth creation is considerably higher here. HANG ON! Before putting your hard-earned money here, check your Risk Appetite – is it on the higher side? If so, go ahead. If not, then it’s not for you!
A Conservative Investor Wanting to Create Wealth in the Long Term? PPF is the Option to Tick!
Conservative investors usually don’t go for long-term tax saving investments. But if you want to break that TREND, a Public Provident Fund (PPF) could be the tax saving option where you should lay your hands on! As of now, PPF comes at an interest rate of 8% per annum. The rate is, however, subject to change from the government of India as and when it deems necessary to do so. The maximum investment you can make in a year amounts to ₹1.5 lakh. Either you can do it in a lump sum or periodic installments. The lock-in period is 15 years, but you can make partial withdrawals from the 7th financial year onward. No tax on PPF interest is something that can tickle your head more.
Seeking a Tax-saver Plan That Could Help Generate Regular Income Post Retirement? Think of NPS
The National Pension Scheme (NPS) is one of the most sought-after tax saving options. It allows an additional tax deduction of up to ₹50,000 under Section 80CCD (1B), besides the usual ₹1.5 lakh under Section 80C. The tax saving scheme is available to the employees of organized and unorganized sectors across public and private entities. A portion of the monthly contribution to the provident fund account goes into NPS and remains under the watchdog of the Pension Fund Regulatory Development Authority (PFRDA). 60% of the NPS corpus can be withdrawn at retirement and that too without paying tax. The remaining portion goes into an annuity plan offering you regular pension post-retirement.
Seeking Fixed Returns? Bank on Tax-Saving FD/Fixed Deposits
Having a low-risk appetite means you won’t be enjoying the thrill of volatility. This calls for an investment that can offer tax saving FD – fixed returns. So, the tax saving FD comes out as an option to go with. It comes with a lock-in period of 5 years and offers returns at par with that of a regular fixed deposit. Interest earned on tax saving FD upto ₹40,000 (regular) and ₹50,000 (senior citizens) in a financial year is exempt from tax. You can invest a maximum of ₹1.5 lakh in a year.
Thinking for a Life Insurance Policy – Unit Linked Insurance Plan (ULIP)
ULIPs have a lock-in period of five years. Also, ULIPs have zero administration charges and zero premium allocation charges. The premium paid toward the acquisition of a life insurance policy is eligible for a deduction of up to Rs. 1.5 lakh as per section 80C of the Income Tax Act of 1961. Furthermore, income earned on the maturity of the policy is tax-free under section 10(10D). If the premium is less than 10% of the total assured, the income is tax-free. In the instance where the money is given to the person’s nominee, the money is treated as a tax exemption in the nominee’s hands.
Having a girl child – Go for Sukanya Samriddhi Yojana (SSY)
This is a special tax saving scheme for girls after they turn 10. This small deposit scheme, valid for 21 years, is a part of the ‘Beti Padhao Beti Bachao’ movement. It offers an interest rate of 7.6%, providing the benefit of tax exemption and tax savings. The tax saving scheme allows for a fixed-income investment in which the taxpayer can make regular deposits while also earning interest. Sukanya Samriddhi Yojana investments are also eligible for a deduction under section 80C of the Income Tax Act. The rate of interest on the programme is determined quarterly by the Indian government and is payable on maturity.
Worrying about your elder ones – Here is Senior Citizens Savings Schemes (SCSS)
It is a special tax saving scheme designed for senior citizens of India. Tax Saving Investments in the Senior Citizen Savings Scheme are eligible for a deduction of up to Rs. 1.5 lakh from taxable income according to section 80C. If the interest on such deposits exceeds Rs. 50,000, it is completely taxable and eligible for a tax deduction. The money you put into a Senior Citizens Tax Savings Scheme account is compounded and paid out once a year.
Last Not But Not the Least – National Savings Certificate (NSC)
It is one of the tax saving schemes available at post offices across the country. There’s no investment limit, which means the scope for wealth creation is more compared to most of its 80C counterparts, if not all. However, the tax deduction is capped to ₹1.5 lakh in a year. The tax saving scheme comes with 2 lock-in periods – 5 years and 10 years. You can choose from the two maturities depending on your requirements. Presently, the NSC tax saving option comes at an interest rate of 8% per annum.