1. Equity-linked Savings Scheme (ELSS) is a type of mutual fund investment that can help you save income tax under Section 80C. ELSS invests in stocks, so the returns are linked to the market and can be risky. You can invest any amount in ELSS, but the maximum deduction you can claim is Rs 1.5 lakh. ELSS has a lock-in period of three years, which means you can’t withdraw your investment before that. If you redeem your investment after three years, the return earned will be taxable.
2. National Pension System (NPS): The NPS is a retirement-oriented investment option that is eligible for tax deduction under Section 80CCD (1) of the Income-tax Act. The returns earned in NPS are linked to the market. An investor can claim a deduction of up to 10% of their salary (basic salary plus dearness allowance) under Section 80CCD (1), subject to a maximum deduction limit of Rs 1.5 lakh. For example, if someone has a basic salary of Rs 10 lakh, they can claim a deduction of Rs 1 lakh under Section 80CCD (1). To fully use the benefit of Rs 1.5 lakh, they will need to explore other tax-saving investment options. It is important to note that the NPS is a retirement-focused investment and the funds are locked in until the investor reaches retirement age. The minimum age of entry is 18 years, and the maximum age of entry is 65 years. The maturity age is 60 years, but investors can choose to extend it by 10 years. NPS offers two types of accounts: Tier I and Tier II. Tier I is a mandatory account that comes with a lock-in period until the investor reaches the retirement age. Tier II is a voluntary account that allows investors to withdraw funds at any time. However, investments in Tier II accounts are not eligible for tax deductions under Section 80CCD (1).
3. PPF is a popular savings scheme that allows individuals to save tax with EEE tax status. PPF is a debt investment and has a sovereign guarantee since it is a government scheme. The interest rate on PPF is announced every quarter, and the current annual interest rate is 7.1%. PPF has a lock-in period of 15 years, but partial withdrawal and loan facilities are available. The minimum and maximum investment amounts in PPF are Rs 500 and Rs 1.5 lakh, respectively. It is mandatory to make a minimum investment in PPF every financial year. Failure to do so will result in the account becoming discontinued. PPF accounts can be opened with a bank or a post office.
4. Employees Provident Fund (EPF): EPF is a popular tax-saving option for salaried individuals. It’s a mandatory contribution made by both the employee and employer, where the employee contributes 12% of their basic salary to the EPF account and the employer contributes a matching amount. The interest rate on the EPF account is decided by the government and it has a lock-in period until retirement. However, partial withdrawal is permitted under specific circumstances. If an individual does not find a job after quitting, they can withdraw the entire amount from their EPF account and close it. The amount that can be invested in the EPF account depends on the salary, and additional contributions can be made via Voluntary Provident Fund (VPF). However, if the total contribution exceeds Rs 2.5 lakh in a financial year, the interest earned on excess contributions will be taxable.
5. Tax-saving fixed deposits: Tax-saving fixed deposits for 5 years are another tax-saving option. Individuals can invest in them at a bank or post office. FD-Tax-saving fixed deposit is a savings option that helps individuals save income tax in the current financial year. The interest rate on the fixed deposit varies between banks and is announced by the government for post office deposits. The interest earned from tax-saving fixed deposit is taxable. The investment has a lock-in period of 5 years, which means that the money cannot be withdrawn before the completion of 5 years from the date of investment. The minimum investment amount varies between banks, while the minimum investment amount for post office deposits is Rs 500. There is no maximum limit on the investment amount, but an individual can only claim a maximum tax benefit of Rs 1.5 lakh.
6. An individual can invest in National Savings Certificate (NSC) to save income tax. This can be done by visiting the nearest post office. The interest rate on NSC is announced by the government every quarter, but once invested, the interest rate remains fixed till maturity. Currently, NSC is offering an interest rate of 7% per annum.
7. The Sukanya Samriddhi Yojana is another tax-saving option for individuals. It can be opened for a girl child below the age of 10 years through a bank or post office. The account will mature after 21 years of opening, and deposits are required to be made for 15 years. Only one account can be opened for each girl child, and a maximum of two accounts can be opened in a family. The minimum and maximum deposit amounts are Rs 250 and Rs 1.5 lakh, respectively, in a financial year. If the minimum deposit is not made, the account will become default. Like PPF, Sukanya Samriddhi Yojana also has the EEE tax status.
8. Senior Citizens Savings Scheme (SCSS) is a tax-saving scheme available only for senior citizens. The government announces the interest rate of the scheme every quarter. Currently, it offers an interest rate of 8%, which remains fixed for the entire tenure of the scheme. The scheme has a lock-in period of 5 years, but premature closure is allowed with a penalty. The minimum deposit allowed is Rs 1000, and the maximum deposit is currently Rs 15 lakh, which has been proposed to be increased to Rs 30 lakh in the Budget 2023. The interest earned is taxable, but senior citizens can claim a deduction under section 80TTB for the interest earned.
9. ULIP is a type of insurance product that offers life insurance coverage and investment benefits in equities. The returns from ULIPs are linked to the market. The investment made in ULIPs is locked in for 5 years, and once the lock-in period is over, the individual can withdraw the money. The amount of investment that can be made in ULIP depends on several factors, such as age, sum insured, and policy term. However, if the total premium paid for all ULIPs in a financial year exceeds Rs 2.5 lakh, then the maturity proceeds from ULIP will be taxable.