Tax-saving deductions under section 80C of the Income-tax Act, 1961 is commonly considered by the taxpayers during a financial year. Section 80C is one of the most prevalent deductions available under the Income-tax Act, 1961. Under various provisions of the Income-tax Act, though, there are other deductions possible that can help a taxpayer further reduce their tax liability. Under section 80C, all individuals and HUFs can reduce up to Rs 1,50,000 from their overall taxable income. For deposits made in PPF, EPF, LIC premium, Sukanya smriddhi yojana (SSY), National Savings Certificate (NSC), Senior Citizen Savings Scheme (SCSS), ULIP, tax-saving FDs, stamp duty and property purchase registration fees, etc, a taxpayer can avail tax exemption under section 80C. Hence, below are the 5 best tax saving investment options for you as a conservative investor that not only allow you to claim tax benefits but also offer guaranteed returns.
5-year Tax Saving FD
For risk-averse investors, bank fixed deposits are the most common investment alternative. Tax saving FDs of banks comes with a lock-in period of 5 years. Currently, on 5-year tax-saving FDs, SBI is giving an interest rate of 5.4 per cent to non-senior citizens and 6.2 per cent to senior citizens. According to Section 80TTB, senior citizens can claim a deduction of Rs 50,000 on the interest received from deposits. On tax-saving FDs investment and maturity amount are tax-free, but interest is taxable. That being said, only if the fixed deposit returns surpass Rs 40,000 (Rs 50,000 for senior citizens) in a year, TDS is deducted by the bank. TDS on your fixed deposit income withheld by the bank is 10 per cent if you support the bank with your PAN specifics. To know more about tax saving FDs, click here.
National Savings Certificate (NSC)
In order to diversify their fixed-income holdings, NSCs are very common among risk-averse investors. For a term of five years, it provides guaranteed interest. NSC is currently offering 6.8 per cent interest which is paid at maturity but compounded annually. However, interest earned from 5-year NSC is taxable at the time of maturity. It is worthwhile to know that, under Section 80C, the interest amount that is reinvested counts for a tax deduction, making it tax-free. One can make a deposit in this small saving scheme by a minimum of Rs. 1000/- and in multiples of Rs. 100/- with no upper limit.
Senior Citizen Savings Scheme (SCSS)
SCSS is another post office small savings scheme for individuals over 60 years of age. Currently, SCSS is providing a guaranteed return of 7.4% (payable quarterly) which is much higher than senior citizen special FD schemes of banks. This scheme comes with a tenure of five years and, within one year of maturity the SCSS account can be further extended to a block of 3 years. One can deposit in the account in multiples of Rs 1000/- up to a limit of Rs 15 lakhs. Interest received on SCSS is taxable if in a financial year it reaches Rs 50,000 and TDS is calculated accordingly as well. In the event of any surplus deposit made to the SCSS account, the excess balance will be automatically reimbursed to the account holder and only the interest rate of the PO Savings Account will be available from the date of the surplus deposit to the refund date. Under section 80C of the Income Tax Act, 1961 deposits made towards SCSS qualify for tax deductions.
Sukanya Samriddhi Yojana (SSY)
In the name of a girl child, a parent or guardian can open the SSY account before she reaches 10 years of age. Under this government-backed scheme up to 15 years from the date of account opening, one can make deposits. After 21 years or at the time of the girl's marriage, the SSY account matures after she turns 18. If the girl hits the age of 18 or after completing Class 10, an individual is allowed to withdraw up to 50 per cent of the deposit. For a limit of two daughters, the account can be opened with a total contribution of up to Rs 1.5 lakh per year. With effect from 01-04-2020 SSY is providing an interest rate of 7.6% per annum which is calculated on a yearly basis. Investments under SSY, as PPF, come under EEE status, which means that at the time of deposit, accrual of interest and withdrawal, an investor receives a tax deduction.
Public Provident Fund (PPF)
PPF is among the best investments in the fixed income space as it is backed by the government and provides no market-linked returns. That being said, the downside of this scheme is that it comes with a long maturity period of 15 years. If you do not need the interest income at the time of maturity, the maturity can be extended further by a block of 5 years. In some conditions, the PPF allows early withdrawals within five years of account opening. PPF currently proposes an interest rate of 7.1% p.a, compounded annually. Under PPF deposits can be made in lump-sum or in installments with a minimum contribution of Rs 500 up to a limit of Rs 1.5 lakh per annum. An account holder can make one withdrawal after five years, except the year of account opening, within a financial year. At the end of the 4th preceding year or at the end of the preceding year, withdrawal can be made up to 50% of the account balance whichever is lower. PPF comes under the tax status of EEE, which implies that at the time of deposit, accrual of interest and withdrawal, an account holder can claim a tax deduction.