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 instrument to ensure you take home reasonably high. But which instrument 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 tax-savers to five best ones – ELSS, PPF, NPS, Tax-saver FD and NSC – from which you can select.
These 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 investment made in a year. If the calculations are to be taken into account, one can save as much as 46,800 tax 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.
Table of Contents
- 1 Don’t Want to Limit Your Earnings? ELSS Could be the One to Go with!
- 2 A Conservative Investor Wanting to Create Wealth in the Long Term? PPF is the Option to Tick!
- 3 Seeking a Tax-saver Plan That Could Help Generate Regular Income Post Retirement? Think of NPS
- 4 Seeking Fixed Returns? Bank on Tax-saver Fixed Deposits
- 5 Last Not But Not the Least – National Savings Certificate (NSC)
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-saver mutual fund scheme that offers 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 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 investments. But if you want to break that TREND, a Public Provident Fund (PPF) could be the one 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 upto ₹50,000 under Section 80CCD (1B), besides the usual ₹1.5 lakh under Section 80C. The 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-saver 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 fixed returns. So, the tax-saver bank fixed deposit 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 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.
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. But the tax deduction is capped to ₹1.5 lakh in a year. The scheme comes with 2 lock-in periods – 5 years and 10 years. You can choose from the two maturities depending on your requirements. Presently, NSC comes at an interest rate of 8% per annum.