Updated February 17th, 2024 at 16:56 IST

Interested in tax savings? Explore investment schemes that can help

Government-backed schemes like PPF and tax-saving FDs offer guaranteed returns, while alternatives such as NPS and ELSS provide additional options for investors

Business Desk
Tax-savvy investing
Tax-savvy investing | Image:Freepik

Tax-savvy investing: Wondering how to enhance your wealth while minimising your tax liabilities? According to experts, opting for schemes like PPF, FD, SSY, SCSS, and NSC is a smart strategy that not only builds wealth but also provides significant tax benefits.

"Minimising tax burdens is a common goal for all taxpayers, and ethical investment avenues offer a way to achieve this while aiming for decent returns," said Arpit Suri, CA and personal finance expert.


"Balancing favourable returns with tax advantages is crucial, and while relying solely on investments for tax savings may not be advisable, they can play a valuable role in your overall tax optimisation strategy," he added.

Popular among investors for guaranteed returns and assured income, government-backed schemes like Public Provident Fund (PPF), tax-saving fixed deposits, Sukanya Samriddhi Yojana (SSY), Senior Citizen Savings Scheme (SCSS), and National Savings Certificate (NSC) cater to different needs and offer specific benefits:


Apart from government-sponsored schemes, alternative programs like the National Pension Scheme (NPS) and Equity-Linked Savings Schemes (ELSS) exist.

Public Provident Fund (PPF)

PPF is widely favoured, providing stability with government-backed interest rates at 7.1 per cent per annum (as of April 2023). It ensures consistent and predictable growth over the long term. Contributions are eligible for deductions under Section 80C, and both interest earned and maturity amount are tax-exempt. With a 15-year lock-in period, PPF encourages long-term investment habits and offers flexibility in deposits.

Senior Citizen Savings Scheme (SCSS)

SCSS is a government initiative for individuals aged 60 or above. With a fixed interest rate of 8.2 per cent per annum (as of January-March 2024), it offers a dependable source of income. Investments range from R1000 to Rs 30 lakh, catering to various individuals. The interest is taxable, but there's a higher threshold for tax-free interest income for senior citizens. New provisions allow spouses of deceased government employees to invest, ensuring financial security for surviving spouses.

Sukanya Samriddhi Yojana (SSY)

SSY is a government-backed savings scheme for the future of girl child. With an annual interest rate of 8.1 per cent (as of January 2024), it facilitates substantial corpus accumulation over its 21-year tenure. Contributions qualify for deductions under Section 80C, and both interest earned and maturity amount are tax-exempt. With government backing, SSY ensures complete security for investments, providing reassurance for a daughter's financial future. SSY offers an opportunity for fathers to invest in their daughter's future with tax-efficient contributions, covering education, marriage, or other life goals.

National Savings Certificate (NSC)

NSC is a favoured choice for guaranteed returns, offering a 7.7 per cent  interest rate per annum. With tenures of 5 or 10 years, a minimum investment of Rs 1000, and partial tax exemption on interest, NSC provides stable income growth, capital protection, and tax benefits. Despite a lock-in period, partial withdrawals are allowed after the third year, making it suitable for those with long-term financial goals and moderate risk tolerance. NSC is a comprehensive option for stable income growth, capital protection, and tax benefits, making it suitable for individuals with moderate risk tolerance and long-term financial goals.

National Pension Scheme (NPS)

NPS is an excellent choice for retirement funds and a consistent monthly income during retirement. Allocating funds across asset classes offers potential high returns. Contributions up to Rs 1.5 lakh qualify for deductions under Section 80C, with an additional Rs 50,000 under Section 80CCD(1B). The entire corpus at maturity is tax-free, and only 40 per cent is taxable upon withdrawal. NPS allows flexibility in investment mix, fund manager selection, and is transferable across employers and locations.

Tax-saving Fixed Deposits

Tax-saving FDs, with a compulsory lock-in period of five years, allow deductions of up to Rs 1.5 lakh annually under Section 80C. While interest is taxable, the interest rate is generally higher than regular FDs to compensate for reduced liquidity. Early withdrawals result in penalties and forfeit tax benefits, and only one tax-saving FD account is allowed per year. Tax-saving FDs are a viable choice for long-term investors seeking tax-efficient investments, but understanding the lock-in period and tax implications is crucial.

Equity-Linked Savings Scheme (ELSS)

ELSS funds, allocating at least 80 per cent to equities, have the potential for high returns over the long term. Investments up to Rs 1.5 lakh per year qualify for deductions under Section 80C. With a relatively short lock-in period of three years, ELSS allows access to invested money if needed. However, being equity-oriented, ELSS is exposed to market fluctuations and volatility, making it suitable for long-term investors with higher risk tolerance.


Published January 26th, 2024 at 09:35 IST

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