It's time again for you to be aggressive if you are not through with your tax planning exercise for the FY 2019-20. And if you are among those who prefer moderate or less risky investments, here are listed some of the best avenues that do not carry risk and at the same time enable tax deduction that reduces your gross taxable salary:
1. EPF: This is a mandatory contribution by the employee which is 12% of basis pay and the same amount is contributed by the employer towards an employee's EPF account. The contribution is allowed deduction as part of Section 80C. Further, with a lucrative rate of interest of 8.65%, interest earnings from the investment avenue are also tax exempt until the employee remains in service for 5 continuous years.
The rate of interest on the avenue is decided every year and despite the centre's demand to reduce it at par with low interest rates in the economy, the department for the past financial year managed to increase it higher than the previous financial year FY 2017-18 that was 8.55%.
Similarly, VPF also allows deduction up to the maximum of Rs. 1.5 lakh as part of section 80C. It is to be noted here that though VPF can be withdrawn at any time during one's service tenure, nonetheless the amount gets locked as retirement corpus. So, if liquidity is also one factor that you seek for think judiciously before lapping up VPF as tax deducting tool.
2. Senior Citizen Savings Scheme: The scheme as the name suggest is typically for senior citizens who are more concerned of the safety of capital and expect regular returns. So, 60 year old retirees within one month of getting their retirement funds can invest in SCSS to get 8.6% return. The maximum investment limit in the product is Rs. 15 lakh. The income which is earned quarterly from the instrument is taxable. The scheme is for 5 years and can be extended for a further 3 year term after it matures.
Notably, for defense personnels that excludes civilian defense employees, minimum age for investing in SCSS has been fixed at 50 years. So, before trend lower in line with interest rates in the economy, you need to invest in the scheme to get handsome return of 8.6% per annum.
For the budget 2020, senior citizen expect the rebate to be further increased and in fact be allowed as a separate deduction exclusive of Section 80C, so that the earnings from the avenue can be at par with the inflation rate.
3. Sukanya Samriddhi Yojana: This is another lucrative scheme that you can invest in and gain dual advantage of accumulating good enough corpus for your girl child as well as get reasonable deduction under Section 80C. Nonetheless, for the same you should be a parent of a girl child aged less than 10 years. For the January-March FY20 quarter, the investment option fetches 8.4% that is compounded on an annual basis. Also, much like the PPF investment, the avenue is EEE in taxation aspect, i.e. the principal invested, interest earned and amount redeemed are all tax exempt. While the maximum amount allowed to be deposited under the scheme is Rs. 1.5 lakh and the minimum amount that needs to be deposited for the account to remain active on an yearly basis has been reduced to Rs. 250 per annum from the earlier Rs. 1000.
This account also qualifies for deduction in respect of the contribution made under section 80C.
4. PPF: This is another sovereign backed investment i.e. rewarding return wise as well as on the taxation front as it allows deduction as part of Section 80C. The return from the investment is currently 7.9% but like other post office schemes is revised every quarter based on yield on benchmark government bonds.
5. National Savings Certificates: Similar to PPF, this 5-year scheme currently fetches 7.9% and the interest pay out offered is rather cumulative. All of the contribution under the scheme except for that made in the last year qualifies for deduction as part of Section 80C.
So, if you are highly risk averse, you can opt for these investment options, nonetheless, in a case you have a bit of risk appetite or your desired or targeted corpus amount is rather on a higher said plus you also seek tax advantage as deductions then you can consider taking the route of tax saving equity funds or ELSS.
Also, another point to take note of here is even though these investments qualify for deduction as part of 80C, if return is also your criteria then you cannot settle down on your investment just considering the tax deduction aspect that can be availed on these, instead you need to also look at post tax return which can be a meager 4-5% in some of the cases if you fall in the highest tax slab category.
But in a case when your net income is below the threshold limit, you would not end up paying tax on interest earned on these fixed income investment options. For the FY2019-20, in a case when the taxable income is lower than Rs. 5 lakh then there arises no tax liability. Also, under section 87A one will be eligible for tax rebate up to Rs. 12500.