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  • Writer's pictureTeam ArthaPurna

Tax Saving Instruments

Updated: Oct 25, 2022




Each of us is troubled by the topic of how to save tax or, more accurately, how to organize your investments. Tax preparation is important, but so are tax-saving strategies. With India's top tax saving plans, you may reduce your tax burden while generating income. The beginning of the fiscal year is the best time to make plans for investments that will save taxes. With year-round returns on your tax-saving investment, this will guarantee that you don't pay more in taxes and save taxes in India.


Why do so few of us in India save taxes when we all try to? The problem can be a lack of information or difficulties making the optimal decision for your financial plans. To assist you in comparison and decision-making, we have included a list of the top tax-saving investment options available in India in this post.


You must make sure that your goal is more than just tax savings while figuring out how to save money on taxes in India. The objective must be to save on income taxes while also making the best possible investment choice.


1. Public Provident Fund

A program created by the Central Government and governed by the PPF Act of 1968 is the Public Provident Fund Scheme. So, we may argue that PPF is a long-term, government-backed little savings program. The Scheme provides a means of investing with respectable yields and tax advantages. The PPF's initial term is 15 years; after that, the subscriber may request an extension for blocks of 5 years without a cap, with or without making additional deposits. One can expect to receive an assured return of 7.1% on investments up to 1.5 lakhs per year.

Kindly click on the arrow bullet:-

Eligibility

Scheme is open to individuals and account can also be opened on behalf of minor child, by natural/legal guardian. Joint Account is Not allowed. HUF & NRIs are Not eligible.

Interest Rate

Lock-In Period

Risk Profile

Taxation on Interest

Tax Benefits Under Section

2. Tax Saver FD

Banks and Non-Banking Financial Companies (NBFCs) provide fixed deposits as an investment choice to help you grow your capital safely and securely. Choose a Tax Saver FD to take advantage of the fixed deposit income tax exemption if you are interested in using fixed deposits as a tax-saving strategy.


You must deposit a big sum of money for a specific duration of time that fits your needs. Your investment receives a fixed interest rate that remains the same regardless of future interest rate changes. Fixed Deposits are regarded as safe because they are not subject to market volatility. If you don't make a withdrawal by the time your fixed deposit reaches maturity, you can also decide to renew it.

The interest rate of Tax Saver FD depends and varies from bank to NBFCs.

Eligibility

Only individuals and HUFs are eligible to invest in tax saver FD schemes. Besides, a minor can invest jointly with an adult.

Interest Rate

Lock-In Period

Taxation on Interest

Tax Benefits Under Section

3.Unit Linked Insurance Plan

In India, one of the most significant investment programs is the ULIP Life Insurance Plan. In the event of one's passing, it makes sure that their family would be financially secure. The taxpayer can profit from the income tax act benefit by buying a life insurance policy.


The premium for a life insurance policy can be written off up to Rs. 1.5 lakh under section 80C of the Income Tax Act of 1961. Furthermore, income from the policy's maturity is tax-free according to section 10(10D). If the premium is less than 10% of the amount assured, the income is tax-free.

If the insurance beneficiary's nominee receives the money, the nominee will still be free from paying taxes on it.


The taxpayer may deduct 20% of their tax on the premium they paid under Section 80C of 1961. The subsequent circumstances also hold true:

1. On or before March 31, 2012, the taxpayer purchases a life insurance policy.

2. He is the only named insured on the insurance, not their spouse or child.


If the life insurance policy is bought after 1 April 2012, the tax deduction for the premium paid is up to 10% of the amount assured.

Returns

Depends on investment

Lock-In Period

Risk Profile

Taxation on Interest

Tax Benefits Under Section

4. National Savings Certificate

A popular investment option that offers assured returns and tax savings is the national savings certificate. The scheme, which was first launched in the 1950s, swiftly rose to popularity thanks to its low-risk aspect and government-backed benefit. To balance their financial portfolio, conservative investors wishing to make shorter-term investments choose to invest in the National Savings Scheme.


The government sets the NSC interest rates, which are then updated every three months. NSC interest rates for 2021 and 2022 are currently 6.8% annually compounded. Under Section 80C of the Income Tax Act of 1961, investors may benefit from a number of tax advantages on both the investment amount and the interest earned.

Eligibility

A single adult, Joint Account (up to 3 adults), a guardian on behalf of minor or on behalf of person of unsound mind and a minor above 10 years in his own name

Interest Rate

Lock-In Period

Risk Profile

Taxation on Interest

Tax Benefits Under Section

5. Sukanya Samriddhi Yojana

To encourage saving for the future of female children, the government introduced the Sukanya Samriddhi Yojana in 2015 as a component of the Beti Bachao Beti Padhao campaign. You can make consistent deposits and receive interest from this fixed income investment. In addition, Section 80C of the Income Tax Act allows you to deduct up to 1.5 lakh from your taxable income for donations you make to the Sukanya Samriddhi program.

Every quarter, the government sets the interest rate for the Sukanya Samriddhi Yojana. The interest rate is 8.4% per year, compounded yearly. Only at maturity or in the event that your daughter's residency or citizenship status changes is the interest payable.

Eligibility

To open an account, a girl child must be 10 years old or less.

Interest Rate

Lock-In Period

Risk Profile

Taxation on Interest

Tax Benefits Under Section

6. Employee Provident Fund (EPF)

A program called the Employee Provident Fund (EPF) assists people in building up a sizeable corpus for retirement. The Employees' Provident Fund Organisation currently oversees the program, which was established in 1952 with the passage of the Employees' Provident Funds Act.


In this program, each month an employee must contribute 12% of their basic pay to the fund. The employer contributes the same amount in matching funds. When you retire, you receive the entire money (your personal contribution plus the employer's share), plus interest. The Government of India controls the EPF and guarantees a fixed rate of return, making it a low-risk investment.

EPF deposits currently have an interest rate of 8.01%. Every year, the EPF rate of interest is reviewed.

Interest Rate

8.1% per annum

Lock-In Period

Risk Profile

Taxation on Interest

Tax Benefits Under Section

7. Equity Linked Saving Scheme

Equity Linked Saving Scheme, also known as ELSS, is a form of mutual fund scheme that predominantly invests in the stock market or equity, as its name suggests. Under section 80C of the Income Tax Act, investments made in ELSS mutual funds up to Rs. 1.5 lac are tax deductible. The fact that ELSS has a 3-year lock-in period is an advantage over other tax saving instruments. This indicates that you can only sell your investment three years after the date of acquisition. However, it is advised to hold onto your investments for as long as possible to maximize the earnings from ELSS funds. Each installment of an ELSS SIP (Systematic Investment Plan) includes a three-year lock-in period, therefore each installment will have a distinct maturity date.

Returns

12-14%

Lock-In Period

Risk Profile

Taxation on Returns

Tax Benefits Under Section

8. National Pension Scheme

The National Pension Scheme, also known as NPS, is a well-liked investing option that reduces income taxes. It is a tax-saving choice open to both public and private sector workers. It enables the depositor to generate a regular monthly income as well as a corpus for retirement. The depositor's money is invested in a variety of plans, including equities markets.


NPS accounts come in two different varieties: Tier-1 and Tier-2. A tier-1 account is locked in until the subscriber turns 60 years old. Under sections 80CCD(1) and 80CCD, the subscriber's donations to tier-1 are tax-deductible. Since Tier-2 accounts are voluntary, subscribers may take their money out whenever they choose. Contributions made to tier-2 accounts, however, are not tax deductible.


According to section 80CCD(1B), a person may invest in NPS and claim a deduction of up to Rs. 1.5 lakh. An additional deduction of up to Rs. 50,000 was provided for NPS payments made by individual taxpayers under a new sub-section 1B that was also implemented.

Eligibility

Anyone between the age of 18-60.

Interest Rate

Lock-In Period

Risk Profile

Taxation on Interest

Tax Benefits Under Section

Product

Interest Rate

Lock-In Period

Risk Profile

Taxation on Interest

Tax Benefits Under Section

Public Provident Fund

7.1%

15 years

Low

Tax-Free

80C​

Tax Saver FD

5-6%

5 years

Low

As per Tax Slab

80C

Unit Linked Insurance Plan

Depends

5 years

Depends

​Returns on maturity are tax-free u/s 10(10D)

80C

National Savings Certificate

6.8%

5 years

Low

As per Tax Slab

80C

Sukanya Samriddhi Yojana

7.6%

18 or 21 years

Low

Tax-Free

80C

​Employee Provident Fund

8.1%

Until Retirement

Low

It falls under the EEE (Exempt, Exempt, Exempt) tax basket

80C

Equity Linked Saving Scheme

12-14%

3 years

High

LTCG over Rs.1 lakh is taxable @10%

80C

National Pension Scheme

Depends

Until Retirement

High

Income from mandatory annuity purchase is taxed as per the income tax slab rate. It falls under the EEE (Exempt, Exempt, Exempt) tax basket, and hence there is no tax on returns or maturity amount.

80C and 80CCD(1B)




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