This is not the time to only focus on annual budget that will lay down the changes related to the tax rule for next financial year. This is also the time of the year when many people go for last minute tax saver investments to exhaust their annual Rs 1.5 lakh limit under section 80C. A deduction helps you reduce your taxable income and hence lowers your tax outflow. While some go for equity investment, others prefer fixed income investment, even for the tax saving purpose. There are many fixed income options to save taxes. However, these options differ in terms of their investment objective, maturity, return, taxability, liquidity options and so on. We tell you about the fineprint of some of most popular fixed income investment options, which can give you tax deduction benefits.
1. Public Provident Fund (PPF)
It is long term saving scheme issued by the central government. The contribution made towards PPF is allowed as tax deduction under section 80C. Moreover, the interest received, and proceeds received at the maturity is entirely tax free. It assures the certain percentage of rate of return. PPF is a good investment option for investors having consistent income and looking for long-term investment as PPF has lock-in period of 15 years.
One can get the benefit of deduction u/s 80 C by investing in PPF in his own account, in the account of his spouse or in the account of any of his child. If investment is made by HUF, the amount can be deposited in the account of any member of the family. Another good tip is to invest in PPF before the 5th of a month in order to earn the maximum interest.
2. Sukanya Samriddhi Yojana (SSY)
SSY is a deposit scheme for the girl child. This scheme currently fetches an interest rate of approximately 8.0 percent, which is tax free. A Sukanya Samriddhi Account can be opened uptil the girl child is ten years old and it can be opened only in the name of the girl child. The minimum deposit under this scheme has been reduced to Rs. 250 from Rs. 1000 per annum. This deposit has to be made for 14 years from the date of opening of account. The deposit is eligible for deduction under section 80C. The proceeds received at the time of maturity as well as interest received on maturity is tax free.
3. Tax Saving Bank FD Scheme
An individual and HUF can invest in tax saving FD scheme in any scheduled bank. The deposits made in FD scheme have a lock in period of 5 years. Premature withdrawals of the FD do not qualify for tax saving purpose. The deposit in FD scheme qualify for tax benefit under section 80C upto Rs. 150000. The interest earned on these fixed deposits are taxable under the head - "income from other sources". This interest income is also liable for TDS in case the interest amount received is more than Rs 10,000 during the year or Rs 50,000 in the case of a senior citizen.
4. National Savings Certificate
Investments of up to Rs 1,50,000 in the National Savings Certificate can earn the subscriber a tax rebate under Section 80C. An individual who wants to save taxes while earning a steady income should invest in NSC.
Currently one can subscribe in NSC VIII issue with an Interest rate of 8 per cent. The interest accrued every year is deemed to be reinvested and is also eligible for deduction u/s 80 C except in the last year. The total interest paid on maturity of NSC is taxable as per the income slab of the individual.
The government has made it easily accessible for prospective investors by making it available in post offices. The maturity period or the lock in period in this case is 5 years. Generally, one cannot exit the scheme early. However, they accept it in exceptional cases like the death of investor or with the court order.
National Savings Certificate is a savings scheme for resident individuals. Hence, Hindu Undivided Families (HUFs) and trusts cannot invest in it; even non-resident Indians (NRI) cannot purchase NSC certificates.
5. Senior Citizen Saving Scheme
This scheme is meant for senior citizens aged 60 years or more. The maturity period of this scheme is 5 years further extendible by three years. There is an overall limit of Rs 15 lakh for this investment per individual. This tax saving scheme provides a good and assured rate of return on the investment. The age limit can be reduced in cases of voluntary retirement, when a person does not take up any other job, and also in the case of defense personal. The interest can be received quarterly, thus providing a regular source of income for a senior citizen. The deposit made under this scheme is eligible for tax benefit under section 80C of the Act, and interest earned under this scheme is taxable like any other fixed deposit scheme and comes under the purview of TDS.
(Shilpi Agarwal is Partner at TASS Advisors)