The tax deadline is approaching fast. Now is the right time to look back at all the things you did in this financial year that may impact your tax calculations. From investments to insurances, many things we do around the year help us save taxes.
While some come at the cost of spending money, some come with market risks. If you are one of those who don’t want to do any of the above things, continue reading, and you will know 5 ways to do it without spending a dime in less than 5 minutes. Let’s start!
Here's what you will learn
Tax Saving Deposits
Tax Saver Fixed Deposits
- TSFD is a special type of fixed deposit with a minimum 5 year lock-in period.
- Only individuals and Hindu Undivided Family (HUF) can invest in tax-saving FDs.
- Premature withdrawals are not allowed for these deposits.
- You can create an FD account in any public or private sector bank, except in co-operative or rural banks.
- A loan can also be availed against these FDs depending on your bank.
- Interest is taxable on a monthly and quarterly basis.
- You can also reinvest the interest amount in the account to save on taxation.
Tax Saver Fixed Deposits are considered as the safest type of tax saving schemes. They provide a guarantee of returns and interest, and can also be used as joint accounts. Additionally, you can also choose a nominee for the account to avail the money in case of an emergency.
If you are a salaried employee, you may already have a provident fund account with monthly deposits in it. Employers Provident Fund is a system in which you as well as your employer contribute equally to your retirement savings. The money put in EPF brings ~8% interest and is also tax efficient.
However, there is another PF category which you can utilize for up to INR 1.5 lakh deduction under section 80C. It is the Public Provident Fund.
- You can open your PPF account with a minimum of INR 500 and a maximum of INR 1.5 lakhs per annum.
- It is a Government-funded scheme and has high safety and stable interest of ~7%.
- The minimum lock-in period is 15 years, after which you can withdraw or reinvest the money along with interest.
- Tax is applicable on the interest earned from the account.
- You can also avail loans against your PPF account for personal requirements.
National Savings Certificate VIII
The post office offers an attractive scheme for saving taxes under section 80C of Income Tax Act, 1961. It is an investment instrument without any risk, backed by the Government of India. You can buy a National Savings Certificate at your nearby post office with a minimum amount of INR 100 while no upper limit is set.
- NSC offers a fixed interest rate of 8% per annum.
- The interest is calculated at compound rates and gets reinvested by default.
- Up to INR 1.5 lakhs can be used as a deduction for taxes under section 80C.
- It comes with two maturity period options of 5 and 10 years.
- A loan can also be availed using the NSC as collateral in Banks and NBFCs.
- You can also choose a nominee for your NSC in case of any emergency.
Post Office Time Deposit
Similar to the concept of Fixed Deposits, is the Post Office Time Deposit scheme. You can open a POTD for 1, 2, 3, and 5 years, though the tax benefit is only for the 5-year plan under section 80C. The interest rates of POTD are decided every quarter by the Government. Unlike FDs, POTDs are backed by sovereign guarantee, which means that they are insured to the full amount. Tax is levied on the interest earned from this account at standard TDS rates.
National Pension Scheme
If you are a private sector employee, the NPS is a great initiative for planning a comfortable retirement. The National Pension Scheme also provides tax deductions under section 80C and 80CCD. Even though the NPS is an investment instrument, the balance of risk and safe investments equals out the investment resulting in 8-10% interest rates.
As the name says, the scheme is for retirement, and withdrawal before that may result in penalties. However, after 3 years of investment, you can withdraw up to 25% of the amount for certain purposes allowed in exceptions.
Save Tax With Patience
The deposits stated above are tax-efficient only with a minimum lock-in period of 5 years but have the surety of coming back to your pockets too. So, the only cost that you need to bear is time. Make sure that you do the necessary before 31st March, 2020 to avail the tax benefits. The taxation rules for the next year are probably going to change according to Union Budget 2020. If you have any queries on how to save tax, comment below and we will get back to you at the earliest.