Popular tax savings tools for risk-averse private individuals

Popular tax savings tools for risk-averse private individuals

Popular tax savings tools for risk-averse private individuals
Image Credit: PIXABAY Popular tax savings tools for risk-averse private individuals

Class employees often juggle their income and tax savings. Perhaps this is because many people struggle to figure out how to save on taxes or don’t have a proper investment plan.

In the current scenario, several options are available that allow an employee to save on taxes. Among them, tax saving tools such as NPS, ELSS mutual funds and Ulips are very popular. This is because of the high returns they promise as these instruments are market-based investments. However, thanks to the volatility in the equity segment, these tools also carry a risky assets label. Because of the possibility that an investor could lose value due to fluctuations in the markets, many people avoid investing in securities.

There are many other tax saving tools available to such investors that promise safe returns by staying away from the securities. Under the Income Tax Act 1961 a person is entitled to a deduction of Rs 1.50 lakh per annum under Section 80C.

Gaurav Kapoor, director and co-founder of Fincorpit Consulting, said investors should split the money across different instruments. “This practice of diversification helps reduce risk, and if you choose the right mix of investments, the return or rate of return will be greater.”

Let’s take a look at the popular tax saving tools that can save a person 1.50 lakh a year with a promising return.

Savings program for seniors

The Senior Savings Scheme (SCSS) is essentially a pension scheme. SCSS is supported by the government and is considered the preferred option for retirees (over 60 years of age). The blocking period is 5 years and can be extended by a further 3 years when it becomes due.

The maximum investment limit in this scheme is Rs 15 lakh. The principal amount is eligible for a tax deduction of up to Rs. 1.5 lakh per annum under Section 80C of the Income Tax Act 1961. However, interest is subject to taxation under the individual tax plate.

Pensioners aged 55 to 60 who have opted for the voluntary pension scheme (VRS) and retired military personnel over 50 and under 60 can also invest. However, the investment must be made within one month of claiming retirement benefits.

Post Fixed Deposit Account (POTD)

A fixed deposit account at the post office (POTD) is comparable to a bank fixed deposit. Here you deposit money for a certain period of time. In return, you receive guaranteed interest. POTD has multiple lock-up options from 1 to 5 years.

National Savings Certificates

National Savings Certificates (NSC) are another popular small savings instrument supported by the central government. Because it offers income tax benefits and promises safe returns, NSC is often favored by risk-averse investors.

A person can purchase NPCs from post offices anywhere in the country. There is no age limit for investing in NPCs.

According to the rules, investments in NPCs cannot be withdrawn before the end of the term. The NSC has a term of 5 years and 10 years. The minimum investment is Rs 100. There is no maximum limit. NSC is issued in denominations of Rs 100, Rs 500, Rs 1000, Rs 5000 and Rs 10,000.

fixed deposit

With a tax-saving fixed deposit, you can claim a deduction from income tax. A person can open a tax-saving time deposit account at any bank or post office. Fixed-term tax savings deposits have a blocking period of 5 years.

Public provident fund

The Public Provident Fund (PPF) has been one of the most popular investment targets for decades. Just like other tax savings tools, PPF is backed by the central government and offers risk-free guaranteed returns. The PPF account can be opened at a specific post office or bank branch. It comes with an initial lock-up period of 15 years. PPF falls under the Exempt-Exempt-Exempt (EEE) category.

The deposits made can be claimed as a Section 80C deduction up to Rs. 1,50,000 in a fiscal year. A person may only make 12 transactions in a calendar year on a PPF account. To keep the account going one needs to deposit at least Rs 500 in a year.

PPF has a vesting period of 15 years. The accrued amount, including the capital gain, will not be taxed at maturity. Another option is that an account holder can extend the term of the account. Institutions allow clients to renew indefinitely in blocks of five years.

READ MORE: Public Provident Fund: How to Open a PPF Account and Why It’s the Safest Investment Option

READ MORE: How to Invest in National Savings Certificate: Rules, Term, Interest Rate

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