The Government of India has launched several schemes to help citizens reduce their tax burden and achieve financial stability. When chosen wisely and at the right time, these schemes can go beyond just tax-saving — they can also become powerful tools for long-term wealth creation.
This article will guide you on how to make smart use of these schemes and maximise your tax deductions.
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Section 80C: The Most Popular Tax-Saving Option
Under Section 80C of the Income Tax Act, you can claim deductions of up to Rs 1.5 lakh on eligible investments. Several schemes qualify for this benefit:
PPF (Public Provident Fund): A government-backed savings scheme offering guaranteed returns. The current interest rate is 7.1%. It has a 15-year maturity period, and partial withdrawals are allowed from the 7th year onward.
NSC (National Savings Certificate): This is a five-year fixed income scheme offering an interest rate of 7.7%. The interest earned is taxable upon maturity. However, the interest accrued each year is considered reinvested and is eligible for deduction under Section 80C.
EPF (Employees’ Provident Fund): Mandatory for salaried employees, this scheme involves a 12% deduction from your monthly salary, which is eligible for tax benefits.
Sukanya Samriddhi Yojana (SSY)
This scheme is available for a girl child under the age of 10 and must be opened in her name. You can invest a minimum of Rs 250 and a maximum of Rs 1.5 lakh in a financial year. The current interest rate is 8.2%, which is higher than many other tax-saving options.
The account matures when the girl turns 21 or upon her marriage after the age of 18.
Deposits, interest earned, and the maturity amount — all are tax-free under this scheme.
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National Pension System (NPS)
NPS is considered one of the best schemes for retirement planning. It offers two types of accounts — tier I and tier II. Tax benefits are available only on tier I investments:
Section 80CCD(1): Deduction up to Rs 1.5 lakh (included in Section 80C limit)
Section 80CCD(1B): Additional deduction of Rs 50,000 (over and above Section 80C)
Investments are diversified across equity, corporate bonds, and government securities. You can choose your allocation based on your risk profile. Upon turning 60, you can withdraw 60% of the corpus tax-free, while the remaining 40% must be used to purchase an annuity.
ULIP (Unit Linked Insurance Plan): Protection Plus Growth
ULIPs offer a combination of life insurance and investment in market-linked funds. They come with a lock-in period of five years and offer tax deductions of up to Rs 1.5 lakh under Section 80C.
ELSS: Save Tax While Investing in Equity
Equity Linked Saving Schemes (ELSS) have the shortest lock-in period — just three years — among all tax-saving investments. Your money is invested in equity-based mutual funds, which have the potential to offer strong long-term returns.
You can claim deductions of up to Rs 1.5 lakh under Section 80C. ELSS is best suited for investors willing to take moderate risks for higher returns.
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Senior Citizen Saving Scheme (SCSS): Safe with High Returns
SCSS is a secure, government-backed scheme specifically designed for individuals aged 60 and above. It currently offers an interest rate of 8.2% — among the highest across tax-saving instruments. The maximum investment limit has been raised to Rs 30 lakh.
The scheme has a tenure of five years, extendable by three more years. Interest is paid quarterly.
Wrapping Up
Investing just to save tax is not a wise move. It’s essential to assess your financial goals — whether you prioritise safety, growth, or retirement planning. If you are a conservative investor, PPF, SCSS, or NSC might suit you better. For younger investors, ELSS and NPS could be more beneficial for building long-term wealth.
Don’t wait until the end of the financial year to plan your taxes. Start early so you can make informed decisions and take full advantage of all available options.
*The article is for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
