Risk free tax saving investments can help you to save tax in addition to guaranteed return. It not only keep your money safe but also help you achieving your long term goal. You can invest in any market linked securities such as equity or debt, but return from these investments are not fixed.
Return from market linked securities depends on the underlying security and market. If you are a risk taker, then investing into these securities can give you good return in longer term, for a tenure of 5 years or more.
In case of risk free investment options, you can stick to bank or post office deposits which gives risk free return and tax deduction under section 80C of income tax act,1961.
Here are the 5 best risk free tax saving investments to give you good return and tax benefits.
Public provident fund or PPF
Public provident fund or PPF is one of the best tax saving investment scheme which not only gives you tax benefits but also known as a risk free return.
To start investing, you can approach a post office or authorized bank to open a Public Provident Fund account for you. You can also open a PPF account in your wife’s name or in the name of minor child to get benefits.
Investment in public provident fund is known for EEE benefits. This means contribution to Public Provident Fund is allowed as tax deduction (exempted), interest incurred from PPF contributions is exempted and maturity proceedings from PPF account are also exempted at the end of the term.
Public provident fund is a 15 year scheme. However, you can extend it indefinitely in a block of 5 years.
If you are working as an employee, employer must be deducting contribution to employee provident fund. That contribution is also allowed as tax deduction under section 80C. However, in addition to EPF, we suggest you to contribute to PPF scheme to get addtional risk free return and tax deductions.
Sukanya samriddhi yojana
Sukanya samriddhi yojana can be opened by an individual after the birth of the girl child till she turns 10 years.
You can visit nearest post office to open a sukanya samriddhi yojana account. You can start contributing Rs 1,000 up to Rs 1,50,000 per year.
Contribution to sukanya samriddhi yojana is allowed as tax deduction under section 80C, interest earned from it is exempted and amount to be received at the time of maturity will also be exempted. This is why it’s known as a EEE scheme.
5 years fixed deposits with a Bank
You can invest in 1,2,3 or 4 year fixed deposits to get good return instead of keeping money in a saving or current account. However, only 5 years fixed deposits is allowed as tax deductible under section 80C of income tax act,1961.
However, interest out of fixed deposits is not tax exempted.
Bank is required to deduct tax from interest income if it crosses Rs 10,000 during the financial year.
While filing your annual return of income with government, you need to look for this amount in form 26AS online and accordingly return has to be filed.
If you are eligible for refund, then it will be issued to your bank account based on the income tax return filed.
5 years fixed deposit schemes are not coming under the category of EEE, as income generated out of it is not tax exempted.
However, it’s a good risk free return scheme which comes with section 80C benefits. If you want to create a liquid fund for a short term goal, then fixed deposit can be a better option as it can be withdrawn after 5 years.
For a senior citizen, tax deduction up to Rs 50,000 is allowed under section 80TTB from interest on fixed deposit. TDS is also not deductible up to Rs 40,000 per year.
National Pension Scheme or NPS
National pension scheme or NPS is another best investment option for a indian citizen who wants to save for retirement.
Employee or a self employed person can take benefits of this scheme by contributing to NPS.
National pension scheme is managed by PFRDA though approved pension funds.
Based on your age and choice of plan, your exposure to equity and other instruments are determined.
Contribution to NPS is allowed as tax deduction under section 80CCD of income tax act,1961, which is within the maximum ceiling of Rs 1,50,000. However, under section 80CCD(1B), you can claim additional tax deduction of Rs 50,000 in addition to the maximum amount amount of Rs 1,50,000 allowed under section 80C.
Post office Deposits
You have number of schemes with post office to invest for a good return. However, tax provisions for these schemes are not same.
An individual can invest in national saving certificates, senior citizen saving schemes and 5 years term deposits to get section 80C tax deduction.
Senior citizens saving scheme is available to a person who is retired. A senior citizen can invest into these schemes for a tenure of 5 years, which can further be extended to 3 more years.
Investing into a 5 year term deposits also gives you risk free return with tax benefits under section 80C. However, Interest from this term deposit is taxable.
Section 80C benefits is available for the amount invested to a 5 years national saving scheme or NSC. These post office schemes give you risk free return with tax benefits of section 80C.
Post office monthly income scheme and recurring deposits does not give you section 80C tax deduction.
Is Life Insurance endowment policy a good tax saving investment option for you ?
Generally we do not take endowment policy as a good investment opportunity.
Endowment policy is a life insurance contract signed by the policyholder with a insurance company to get a lump sum amount based on the amount invested, at the time of maturity or on the death of policy holder.
On the other hand, a term plan is a contract signed by policyholders with insurance companies to get benefits only on the death of policyholders. You don’t get any maturity benefits or return from a term plan.
Amount invested into these life insurance policies are tax deductible under Section 80C of income tax act,1961.
Sum assured in a endowment policy is generally not enough to cover someone’s life based on policyholder’s income. For a better life coverage, we suggest you to go for a good term plan in addition to other investments.
Even though a term plan doesn’t gives you return periodically or at the end when you discontinue it, it’s a very good plan to give you a risk free life.
As discussed above amount invested into a endowment and term plan are eligible for tax deduction under section 80C.
If you are a salaried person, then investing into tax saving investment schemes can reduce your taxable income and tax liability. You need to submit tax proofs to your employer for lower tax deduction.