Salaried class people often juggle between their income and tax savings. This is probably because many people find it difficult to figure out how to save on taxes or do not have a proper investment plan.
In the present scenario, there are several options available that allow a salaried individual to save tax. Among these, tax saving tools like NPS, ELSS mutual funds and ULIPs are very popular. This is because they promise high returns as these instruments are market based investments. But these instruments also carry the tag of high-risk investments due to volatility in the equity segment. Since there is a possibility that an investor may experience depreciation in the value of an investment due to volatility in the markets, many people avoid depositing their money in securities.
For such investors, there are many other tax saving instruments available that promise assured returns by staying away from securities. As per the Income Tax Act, 1961, a person is entitled to a deduction of Rs 1.50 lakh per annum under section 80C.
Gaurav Kapur, director and co-founder, Fincorpit Consulting, said investors should split the money into different instruments. “This practice of diversification helps reduce risk and when you choose the right mix of investments, the output or return will be higher.”
Let’s take a look at the popular tax saving tools that allow an individual to save Rs 1.50 lakh per year with a promising return.
Savings Scheme for Senior Citizens
Senior Citizen Savings Scheme (SCSS) is basically a retirement benefit scheme. Backed by the government, SCSS is considered the most preferred option for retirees (above 60 years of age). The lock-in period is 5 years which can be extended for another 3 years at the time of maturity.
The maximum investment limit in this scheme is Rs 15 lakh. The principal amount is eligible for tax deduction up to Rs. 1.5 lakh per annum under section 80C of the Income Tax Act, 1961. However, the interest is subject to tax as per the individual tax slab.
Retirees in the age group of 55 to 60 years who opt for Voluntary Retirement Scheme (VRS) and retired defense personnel above 50 and below 60 years of age can also invest. But the investment should be made within one month of receiving the retirement benefits.
Post Office Fixed Deposit Account (POTD)
Post Office Fixed Deposit Account (POTD) is similar to a bank fixed deposit. Here you deposit money for a fixed period. In return, you get guaranteed interest. POTD has multiple lock-in period options ranging from 1 to 5 years.
national savings certificate
National Savings Certificate (NSC) is another popular small-savings instrument backed by the central government. Since it offers income tax benefits and promises assured returns, NSC is generally preferred by risk averse investors.
A person can buy NSC from post offices anywhere in the country. There is no age limit to invest in NSC.
As per the rules, investment in NSC cannot be withdrawn before the maturity period. NSC comes with maturity period of 5 years and 10 years. The minimum investment is Rs 100. There is no maximum limit. NSC is issued in denominations of Rs 100, Rs 500, Rs 1000, Rs 5000 and Rs 10,000.
Fixed deposit
Tax saving fixed deposit allows you to claim deduction of income tax. Any individual can open a tax saving fixed deposit account in any bank or post office. Tax saver fixed deposits have a lock-in period of 5 years.
public provident fund
Public Provident Fund (PPF) has been one of the preferred investment destinations for decades. Like other tax-saving instruments, PPF is backed by the central government and provides risk-free guaranteed returns. PPF account can be opened at any designated post office or bank branch. It comes with an initial lock-in period of 15 years. PPF comes under exempt-exempt-exempt (EEE) category.
The deposits made can be claimed as deduction under section 80C up to Rs. 1,50,000 in a financial year. An individual is allowed to make only 12 transactions in a calendar year in a PPF account. To keep the account operational, at least Rs 500 has to be deposited in a year.
PPF has a lock-in period of 15 years. Accumulated amount including capital gains will not be taxed on maturity. Another option is that an account holder can extend the term of the account. Institutions allow clients to extend indefinitely in blocks of five years.
Read more: Public Provident Fund: How to open a PPF account and why it is the safest investment option
Read more: How to Invest in National Savings Certificate: Terms, Maturity, Rate of Interest