Salaried class people often juggle between their income and tax savings. This is perhaps because many people find it difficult to figure out how to save taxes or don't have a proper investment plan in place.
In the current scenario, there are multiple options available that allow a salaried person to save tax. Among them, tax saving tools like NPS, ELSS mutual funds and Ulips are very popular. This is because of the high return they promise as these instruments are market-based investments. But these tools also attach a tag of high-risk investments, thanks to the volatility in the equity segment. Since there is a possibility that an investor may experience depreciation in the value of investment due to fluctuations in the markets, many people avoid parking their funds in securities.
For such investors, there are many other tax saving tools available that promise assured returns by staying away from the securities. As per the Income Tax Act, 1961, an individual is entitled to a deduction of Rs 1.50 lakh per annum under Section 80C.
Gaurav Kapoor, director & co-founder, Fincorpit Consulting, said that investors should split the money among different instruments. "This practice of diversification helps in reducing the risk and when you pick the right blend of investments, the output or return will be higher."
Let's take a look at the popular tax saving tools that allows a person to save Rs 1.50 lakh per annum with a promising return.
Saving Scheme for Senior Citizens’
Senior Citizens’ Saving Scheme (SCSS) is basically a retirement benefits scheme. Backed by the government, SCSS is considered the most preferred option for retirees (above the age of 60 years). 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 a tax deduction of up to Rs. 1.5 lakh per annum under section 80C of the Income Tax Act, 1961. However, interest is subject to tax as per the individual tax slab.
Retirees in the age bracket of 55 to 60 years who have opted for the Voluntary Retirement Scheme (VRS) and retired defence personnel above 50 and below 60 years can also invest. But investment must be made within a month of availing the retirement benefits.
Post Office Time Deposit Account (POTD)
A post office time deposit account (POTD) is akin to a bank fixed deposit. Here, you deposit money for a definite period. In return, you earn a guaranteed interest. POTD has options of multiple lock-in periods ranging from 1 to 5 years.
National Savings Certificates
National Savings Certificates (NSC) is another popular small-savings tool that is backed by the Central government. Since it offers income tax benefits and promises assured returns, NSC is commonly favoured by risk-averse investors.
A person can purchase NSC from post offices anywhere in the country. There is no age limit to investing in NSC.
As per the rules, investments in NSC cannot be withdrawn before the maturity period. The NSC comes with a 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.
A tax-saving fixed deposit allows you to claim a deduction in the income tax. A person 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
The Public Provident Fund (PPF) has been one of the favourite investment destinations for decades. Just like other tax-saving tools, PPF is backed by the Central government and offers risk-free guaranteed returns. PPF account can be opened in a designated post office or a bank branch. It comes with an initial lock-in period of 15 years. PPF falls under the Exempt-Exempt-Exempt (EEE) category.
The deposits made can be claimed as a deduction under Section 80C up to Rs. 1,50,000 in a financial year. A person is allowed to make only 12 transactions in a calendar year in a PPF account. To keep the account running, one must deposit a minimum of Rs 500 in a year.
PPF has a 15 years lock-in period. The accumulated amount including the capital gain will not be taxed at maturity. Another option is that an account holder can extend the tenure of the account. Institutions allow customers to extend indefinitely in a block of five years.