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Tax Saving Schemes is the best way to make investments to save tax by claiming deductions available under the provisions of the Income Tax Act, 1961.
How to save tax? It is the most confusing question in the minds of every taxpayer. The tax saving schemes provide a platform to the taxpayers through which they can easily save tax. The investments in the income tax deductions are a way to save tax legally. The tax saving schemes keep these deductions in mind and bring you the best way for saving taxes. The various schemes worth knowing for easy tax saving are as follows:
Public Provident Fund (PPF)
Investment in a Public Provident Fund, commonly known as PPF, is the best option to save tax u/c 80C. It is most suitable for the ones who want to save funds for their retirement. It offers to provide the return on par with the inflation mostly. PPF allows contribution to a limit of Rs. 150000, which can be done by small investments or lump-sum. Rate of interest is defined by Ministry of Finance from time to time. Interest earned is tax-free. The lock-in period for Public Provident Fund is 15 years. After five years amount can be withdrawn subject to certain conditions. It is among the best schemes for tax saving.
5 Year Bank Fixed Deposits (FDs)
It is amongst of the best tax saving schemes under section 80C of the Income Tax Act, 1961. It is similar to the fixed deposits, having a 5years lock-in period. The amount invested cannot be withdrawn in between. Higher interest rate compared to the regular FDs is provided. The interest earned at the end of 5years is fully taxable.
National Savings Certificate (NSC)
NSC is a safe investment option. It is issued by the Post Offices. The Government of India looks after the interest and the principal amount. The NSCs are available for five and ten years. There is no limit for investment. Investments are made in the multiples of 1000, 5000 or 10000. Minimum of Rs. 500 is required. The interest rate is fixed every year. Current rates are 8.5% (5years) and 8.8% (10years). The interest is fully taxable. The interest amount is re-invested in the NSC instead of being paid out. The income tax deduction for this investment can be claimed u/s 80C of the Act.
Unit Linked Investment Plan (ULIP)
Section 80C provides the deduction for investment in ULIP also. It is a combination of investment and insurance which is eligible for tax exemption. It covers the risk but no guaranteed returns. Depending upon the scheme the returns can range from 5% to 11%. The maturity revenues earned are tax-free.
Equity Linked Saving Schemes (ELSS)
They are mutual funds which are linked to equity. The investment is made in equity, aiming for higher returns of about 15% in the long term. There is no guarantee for such returns but the study shows that they are achievable. It offers the lowest lock-in period of just three years. Dividend option can be taken to enjoy regular return during the lock-in period. The returns and capital gains are tax-free. The deduction can be claimed u/s 80C easily. ELSS is best investment plan helping to save tax and offering superior returns.
Premium of Life Insurance
Life Insurance can be regarded as a default tax saving scheme used by the investors. It is covered under section 80C. The schemes of life insurance help a person to protect itself and its dependents from any risk in the future. Although the tax benefit can be reversed if anyone gives up the plan before two years.
National Pension Scheme
The contributions can be claimed as a deduction under section 80C of the Act. Low-cost investment options are available. The returns are also fluctuating 3% to 10%. It is not such an attractive and recommendable scheme due to its restrictions. The withdrawals are taxable along with maturity amount. The funds can be accessed only after retirement.
Senior Citizens Savings Scheme (SCSS)
SCSS is for the senior citizens to save tax. The people who are above 60 years of age can make an investment in this scheme.The interest is taxable, but it is mostly covered in the taxable limit. The maximum limit for investment is Rs. 15lakhs. There is a lock-in period of 5years also. The Government backs up the principal amount of investment. The senior citizens can enjoy the quarterly interest returns. Rate of interest is defined by Ministry of Finance from time to time. The deduction is allowable under section 80C.
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