As we are marching towards the end of the F.Y. 2021-22, it’s time to make a few last-minute investments to save taxes. Here are some of the options available to you-
Provident Fund
It is one of the best options available for making investments with the motive to save tax. The rate of interest offered is 8.5% per annum. The fund cannot be withdrawn before 5 years subject to certain conditions.
Employers generally contribute 12% of Basic and DA. Contribution made by an employee is given deduction to the extent of Rs. 1,50,000/- under section 80C of the Income Tax Act, 1961. However, the Government has brought out an amendment through Finance Bill, 2021 to tax the contribution made in excess of Rs. 2,50,000/-. Further, interest on such excess contribution is also taxable. It is also provided that contribution made by the employer to the provident fund, pension fund and superannuation fund in excess of Rs. 7,50,000/- in the given financial year shall also be taxable along with the interest, dividend etc on such excess amount.
Public Provident Fund
This option is generally accessible by individuals who are self-employed or are outside the purview of PF. The contribution made is allowed as deduction under section 80C of the Income Tax Act, 1961 to an extent of Rs. 1,50,000/-. The rate of interest offered is 7.1% per annum. Both the maturity proceeds and the interest earned on the contribution made are exempt from tax. However, the investments are subject to a lock-in period of 15years and can be partially withdrawn from the 7th year.
Tax Saver Fixed Deposits
Deduction under section 80C of the Income Tax Act, 1961, is also provided to the investments made in Tax Saver Fixed Deposits to the extent of Rs.1,50,000/-. The maturity period of these Fixed Deposits is 5 years from the date of investment made. The interest received on these deposits are taxable and TDS shall be deducted accordingly.
National Savings Certificate
The benefit of deduction under section 80C is also extended to investments made in National Saving Certificate. Like all other investments, the maximum amount of deduction available is Rs. 1,50,000/-. The rate of interest offered is 6.8% per annum. Like Tax saver Fixed Deposits, interest earned on investments made in National Savings Certificate is taxable. However, if the interest earned is reinvested, it would not be taxable.
Equity Linked Savings Scheme
This option offers the highest return when compared with other options available. At the same time, it also involves high risk as the investments are made in mutual funds which are traded in stock markets. The lock in period for the investment made is 3 years or 36 months. When the mutual funds are redeemed, any capital gain earned shall be taxable at the rate of 10%. The maximum amount of deduction is Rs. 1,50,000/- under section 80C.
Unit Linked Insurance Plans
This is one of the best options available to the persons who expect returns along with the benefit of insurance. It involves less risk comparatively than the ELSS. The investments are also eligible for deduction under section 80C subject to the ceiling limit of Rs.1,50,000/-.The maturity proceeds are also exempt under section 10(10D). The investment is generally made for a period of 10 years or more.
National Pension Scheme
Under this scheme an additional deduction of Rs. 50,000 is provided which is over and above the deduction of Rs. 1,50,000 provided under section 80C. This is a good option for those who are planning to create a retirement fund. As investment is related to retirement, the lock-in period of investment is till the retirement age is attained.
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