The Buyt Desk
Tax Saving Investment serves the dual purpose of saving taxes and giving you a return on your investment. The basic principle on which these investment schemes work is that your money is locked for a pre-decided term. You have to adhere to a lock-in period to earn interest. This interest is tax-free in a few schemes and taxability on the proceeds of maturity amount may differ from scheme to scheme. Let’s give you details about 4 such investments that can help you in saving tax.
1)Public Provident Fund – PPF is a tax-saving long-term investment scheme. This investment option in addition to creating a financial cushion post-retirement also helps in saving tax. The attractive interest rate also ascertains good returns. The interest rate of PPF is reset every quarter.
Coming to the income tax status, PPF enjoys the status of EEE i.e exempt, exempt, exempt. It means the contribution made in the PPF account is exempted from tax, interest earned is exempted from tax and maturity amount is also exempted from tax. All these factors make the PPF investment scheme a low-risk product.
The maturity of PPF is 15 years and can be extended to 5 more years. An investor can claim a maximum of 1.5 Lakh amount for tax exemption under the income tax section 80C.
Partial withdrawal is allowed from the PPF account after the period of 7 financial years from the date of initiation.
Where Can I Open a PPF Account?
Most of the public and private sector banks offer PPF accounts. You can operate it from your banking mobile application too. You can also open a PPF account in a post office as well.
2)National Saving Certificate – It is a fixed income investment scheme. This tax-saving investment scheme is also government-backed and considered as safe as PPF. The investment scheme not only ensures a handsome return but also saves tax.
An investor can invest in this scheme depending on his investment habits and income range.
Under section 80C of income tax, NSC qualifies for the tax deduction. An investor can claim a maximum of 1.5 Lakh amount for tax exemption. It encompasses three key benefits: complete protection of principal amount, tax-saving and guaranteed interest.
Where Can You Buy NSC?
You can purchase NSC in two modes- electronic mode or in passbook mode. NSC can be bought from the post office, all the public sector banks and 3 private banks (ICICI, HDFC and Axis Bank).
3) Tax Saving Fixed Deposit Account – It is considered one of the best tax saving investment schemes that bank offers. This scheme also comes under section 80C of the Income-tax act 1961. In this scheme, the amount invested by investors remains locked in for five years. This tax-saving investment scheme comes with three benefits. It gives an assured return, saves tax and protects capital.
Where Can I Open a Tax Saving Fixed Deposit?
All the banks whether public or private offer a tax-saving fixed deposit. Further, different types of FD are available in this product category with a tenure range.
4) Equity Linked Saving Scheme – It is also a tax saving investment scheme. It is the only type of mutual fund eligible for tax deduction under Section 80C of the Income-tax act 1961. By investing in this scheme, the investor can save tax up to Rs 1,50,000. The best feature of this tax-saving investment scheme is its locking period. It has the shortest lock-in period of three years. It is the shortest among all investments that come under Section 80C.
The investment scheme gives twin benefits. It helps in saving tax as well as creating wealth. The ELSS portfolio mainly consists of equities, which also imparts fixed-income security to the investor to some extent.
How to Invest In ELSS?
They are mutual funds with a lock-in period. You will invest in an ELSS scheme exactly the way you invest in mutual funds. You will visit the mutual fund’s website, complete your KYC and pick up a plan where you want to invest. It is your choice whether you want to invest via small monthly investment i.e SIP or want to go lump sum way.
