Investment options to save Income Tax

Updated on Sept. 6, 2022, 1:56 p.m.

Under section 80C of Income Tax of India Act, you can invest in certain securities to avail tax deductions. The current limit under section 80C is Rs. 1,50,000. However, purpose of 80C is not only to provide tax relief but also to promote saving habits among tax payers.

Provident Funds

This is one of the major weapons to save the taxes and is considered as a long-term investment option. If you look at the current rate of interest on the PPF Account is 7.9% per annum and this is compounded annually and the lock in period is 15 years. You can open the account with amount like INIR 1000 and you must always investment regularly for period of more than 15 years. The best part is the interest is tax free and this status gives PPF a great advantage compared to the fixed deposits. If you closely analyse the interest on the fixed deposits, it is taxable and rate of returns is barely 4%. PPF will always score high on safety, easiness in investment and flexibility as well.

National Pension Scheme

The best of the National Pension Scheme is it helps us to save the tax and the person can claim the deduction under the Section 80C.  This is good for having a hassle-free life after the retirement, where in you can fulfil the task that you could not complete during your youth due to various commitments like visiting abroad, sponsoring a poor child’s education. You will get the maturity amount when you reach 60 years and you can save tax up to INR 64000 every year on a regular basis.

Senior Citizen Savings Scheme

This is one of the major schemes brought to protect the senior citizens after their retirement at 55 years. The rate of interest offered under this scheme is 8.7% and tenure of this scheme revolves around 5 or 6 years extendable by another 2 years. You can opt for premature withdrawal after a year of opening the account. If you close the account before 2 years, then 1.6% of the deposit is removed as penalty. You can get amazing benefits only after 60 years.

ELSS (Equity Linked Savings Scheme) Funds

This is an Equity Linked Savings Scheme, and one of its kind ideals for doing various tax deductions under the system of Section 80C of the Income Tax Act of 1961. The features of ELSS are:

  • You can go ahead and claim a tax rebate of INR 1,50,000under the Section 80C and you can save up to INR 46,800 in a year in taxes by regularly investing in ELSS.
  • The lock in period is three years and no need to make an early exit.  You can get tax waiver and creation of wealth also takes place.
  • Furthermore, you get inflation protection returns to make your life simpler.
  • People love ELSS as it is instrumental in doubling their investments over a period of time.
  • The returns are always tax free and this gives long term capital gains and they are said to be exempted from the taxes.

Tax Saving Fixed Deposits

You can go ahead and invest in tax savings Fixed Deposits and claim the deduction till INR  150000. The rate of interest is reasonable and the fixed deposits cannot be taken out before 5 years. You can make a single huge deposit and no premature withdrawals are not encouraged. Rate of interest is 5% and the minimum investment depends upon the bank you opt for. Furthermore, you can reinvest the interest or go in for the monthly quarterly or yearly returns from your account. Tax Deductible at Source (TDS) can be avoided by submitting Form 15G or the Form 15H effectively.

National Savings Certificate

The National Savings Certificate is the best option given by the Government of India. You can go to the post office near you and open the account and lock in period is 5 years. The interest earned under the NSC is perfect for the deduction to be undertaken under the Section 80C of the Income Tax Act. You get the certificates in denomination of INR 100, 500, 1000, 2000, 5000 and INR 10000. If the account holder passes away the premature withdrawals are allowed, and this scheme is safest in nature and you can save from the iron clutches of the tax.

Unit Linked Insurance Plan

ULIP (Unit Linked Insurance Plan) is offering benefits of growth of your money along with insurance coverages. It can be done by investing part of your premium as a life coverage and remaining money in area of your choice. It is a dual investment, done to protect your family during unforeseen events and also offer life coverage. You can invest in Debt, Equity, Wealth Creation, Retirements or combination of both activities.

Sukanya Samriddhi Yojana

A unique scheme launched by Modi government to protect and promote education of girl child.  You can open the account when your daughter is below 10 years and want to save tax. Furthermore, rate of interest is 8% and higher than the PPF. This comes with the tax deduction of INR 1.50000 on the amount invested. When your daughter is 21 years, or going for marriage after 18 years, then returns will begin. One or two daughters in a family is eligible for this scheme.

The taxes in India are considered as financial burden and this will add to the fact that there is also lack of information about taxes. Most of them struggle with the tax clutch, and it is vital for the students of the current generation to be taught in schools at early stage, so that they are able to understand taxes when they are adults.

 

 

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