Here are some of the best tax-saving tips at the last minute for a taxpayer or a senior citizen looking to save tax.
By Col. Sanjeev Govila (Retd)
We are just a few days away and it is almost like a last chance to save tax during this financial year. In case you are a taxpayer or a senior citizen looking out for the best tax-saving tips at the last minute, here are a few investment options available to you under Section 80C (maximum total saving of Rs 1.5 Lakh in a financial year). Some of them are one-time investments while others may require regular contributions to be made by you.
One Time Absolutely Safe Investments
- Senior Citizen’s Saving Scheme (SCSS): A very popular investment instrument meant only for those above 60 years of age. It provides a regular quarterly taxable income every three months currently offering 7.4% per annum. One can deposit a maximum of Rs 15 Lakh and the tenure of the deposit in SCSS is five years, further extendable by three more years. SCSS offers the highest post-tax returns as compared to all other fixed-income taxable instruments offered by the Government. So, it comes with the highest safety and is a regular income scheme.
- Post Office Monthly Income Scheme (PO MIS): Almost similar to SCSS, currently the rate of interest is at 6.6% payable on a monthly basis, taxable, and maximum investment allowed is Rs 4.5 Lakh in a single account and Rs 9 Lakh in joint account. POMIS comes with highest safety and is a regular income scheme.
- National Savings Certificates (VIIIth Issue) (NSC): Bought from Post Office, NSC currently offers a rate of interest of 6.8% per annum, tenure of 5 years, minimum Rs 1000 can be invested with no upper limit and the fully taxable interest is payable on maturity. NSC comes with highest safety with compounding of interest.
- Pradhan Mantri Vaya Vandana Yojana (PMVVY): It is a 10-year tenure government scheme managed by the LIC. It guarantees a certain monthly pension at rate prevalent at the time of investment – currently 7.4% annually. Minimum and maximum investments respectively are Rs 1.5 Lakh and 15 Lakhs. Pension is taxable. So, it is the highest safety regular pension scheme.
- Five Year Tax Saving Fixed Deposits (FDs): All the banks as also the Post Office offer tax-saving FDs with a 5-year lock-in. The bank rates are about 6.3% right now while in the Post Office, it is 6.7%. The interest received is taxable and no premature encashment allowed. So, it is a high safety scheme which may or may not have regular income as per your choice.
Absolutely Safe Schemes with recurring Investment
- Public Provident Fund (PPF): This is a long-term Post Office recurring scheme. If you have not opened a PPF account, you may take it provided you are comfortable with its long time-frame. Maximum investment is Rs 1.5 Lakhs and minimum Rs 500 per year, you do not receive any regular income from it, the full tenure is 15 years and you are allowed to withdraw as per rules from 6th year onwards. The maturity amount is fully tax-free. So, PPF is the highest safety, recurring investment scheme with no regular interest but all amounts tax-free on maturity or withdrawal.
Others - National Pension Scheme (NPS): This is a pension scheme managed by seven fund managers under PFRDA rules. The tax saving is higher at Rs 2 Lakhs (under Sections 80C and 80CCD(1B)). Entry age is maximum up to 70 years of age while the withdrawal can be done earliest three years after entry if entry has been done after 60 years of age. The amount of risk and safety taken depends on the account holder. So, it is a recurring investment scheme basically for getting regular pension later and with higher tax limits.
- Mutual Fund Tax Saving Scheme: Called ELSS (Equity Linked Saving Scheme), it is a 100% equity scheme with a 3-year individual lock-in of each money invested. It can be used for one-time bulk investment or recurring bulk / regular investment through the SIP (Systematic Investment Plan) route. After 3-year lock-in, the investment can be continued if one wishes to or withdraw the fund value.
Some important tax saving tips
- Do not forget to claim the Section 80TTB exemption upto Rs 50,000 on interest from savings bank account and FDs.
- Medical insurance gives an additional tax saving up to Rs 50,000 for senior citizens under section 80D.
- Remember, your income is tax free up to Rs 3 Lakh. For those above 80 years of age, this limit is Rs 5 Lakhs.
- While computing how much more to save for tax, do not forget to take into account your life insurance premiums, tuition fee paid for up to two children, and principal part of a home loan taken for a house.
(The author is a SEBI Registered Investment Advisor (RIA), and CEO, Hum Fauji Initiatives, a financial planning firm)
