There are many clever methods to save money on taxes and get the most bang for your buck. But unfortunately, tax planning is something that most people put off until later. A better strategy is to begin investing in the early quarters of the fiscal year so that you have enough time to plan wisely and achieve the best returns from various tax-saving investments.
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Let's look at some of the top tax-saving investments available under Section 80C of the Internal Revenue Code.
1. Fixed Deposits (FD)
Tax-saving FDs are identical to fixed deposits but with a 5-year lock-in period and Section 80C tax-saving investments up to Rs 1.5 lakh.
Eligibility criteria: Residents of Indian Country can apply.
Fixed Deposits have a 5-year lock-in term for liquidity.
Interest Rates: The interest rate on FDs varies between 5.5 percent and 7.75 percent.
Investment limit: Rs 1000 is the minimum investment limit.
Interest is taxable when it is earned.
Also read: Liquid Funds vs Fixed Deposits: How To Make The Right Choice
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2. Public Provident Fund (PPF)
The Indian government backs long-term investments in the Public Provident Fund (PPF), meaning the deposits in your PPF account are eligible for deductions under Section 80C.
Eligibility: Applicants must be Indian citizens, both salaried and non-salaried. PPF accounts are not available to Hindu Undivided Family (HUFs).
PPF accounts have a lock-in period of about 15 years, which can be extended for an additional five years. Partial withdrawals are authorized after seven years.
Interest Rate: The current annual interest rate is 8.0 percent.
Investment Limits: The minimum and maximum investment restrictions are Rs 500 and 1.5 lakh, respectively.
Interest is tax-free when it is earned.
Also read: How to Invest Your Money to Save Tax?
3. Employee Provident Fund (EPF)
The EPF, a retirement benefit plan, is available to all salaried employees. This equals 12% of a worker's base salary plus DA, which the employer deducts and invests in the EPF or another qualified provident fund. Employees drawing salaries are eligible for EPF, and it is also compulsory for them to register for the EPF if they earn less than ₹15,000.
Liquidity: After two months of leaving a job and without taking up employment with a PF Act-covered employer within two months, they can withdraw their PF balance.
Interest Rate: For the fiscal year 2020-21, the EPF's interest rate is 8.5 percent.
Investment limit: Both the employer and the employee must contribute at least 12% of basic income + D.A.
If withdrawn after a tenure of five years continuous service, the whole PF amount (including interest) is tax-free.
Know more: What is EPF Scheme and How to Check Your PF Balance?
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4. National Pension System (NPS)
The NPS is an Indian government-sponsored pension program that provides a pension to unorganized sector workers and working professionals after retiring. Deductions up to Rs 1.5 lakh are allowed under Section 80C.
Eligibility: Anyone in India between 18 and 60 is eligible to apply.
Liquidity: Partial withdrawals after 15 years are allowed, but only in specified conditions.
Rate of Returns: It varies between 12 and 14 percent.
Maximum Contribution: There is no maximum contribution limit.
Contributions made by employers are tax-free.
5. Unit-linked Insurance Plans
ULIPs are a terrific method to diversify your financial portfolio.ULIPs are insurance products that also function as investments. A portion of the money invested in it is used for insurance, while the rest is invested in stocks. ULIP investments of up to Rs 1.5 lakh are eligible for tax benefits under Section 80C.
Investors can purchase ULIPs for themselves, their spouses, or their children. Interest rates fluctuate because they are market-linked.
Rate of Returns: The ULIP's return rate ranges from 12 to 14 percent.
Maximum Contribution: There is no maximum limit.
Also read: 10 Income Tax Planning Tips for Salaried Employees
6. Sukanya Samriddhi Investment Yojana
Sukanya Samriddhi Investment Yojana is one of the most popular initiatives by the government of India. The project's goal is to improve the lives of young women in the country.
Eligibility: Until their daughter becomes ten years old, parents/guardians can open an account in her name.
Liquidity: Up to 50% of the deposit amount might be taken early once the girl reaches the age of 18.
Interest Rate: The Sukanya Samriddhi Yojana has an interest rate of 8.5 per cent.
Investment Limit: The maximum investment for a financial year is Rs.1,50,000.
Investments, withdrawals, and the maturity amount are all tax-free.
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(Check out 'Learn & Grow with Wizely' to learn more about tax planning and investments.)
