4 key tax-saving instruments for conservative investors

The last date to plan your tax savings is March 31

Like every year, the last date to plan your tax savings is March 31. If you are a conservative investor and haven’t made any investment till now, then hurry up! Make investments in tax savings avenues that can help you save tax up to 1.5 lakh under Section 80C of the income tax act for the financial year 2020-21.

We take a look at instruments where all conservative investors can put in their money to avoid wealth erosion.

Public Provident Fund (PPF)

PPF, which is a 15-year long term fixed income security plan, currently offers an interest rate of 7.1% is one of the highest among fixed-income investments. It qualifies for the EEE or exempt-exempt-exempt status and enjoys triple tax exemptions. It means you get a tax exemption at the time of investment. Moreover, the interest earned, and the amount withdrawn on maturity are tax-free.

National Savings Certificate (NSC)

The NSC is a small saving scheme. Like PPF, the NSC is also one of the preferred tax-saving instruments for conservative investors. Currently, NSC offers an interest of 6.8% compounded annually and is payable at maturity.

Archit Gupta, founder and CEO, ClearTax said, “NSC is a safe investment that helps conservative investors earn a higher return than bank FDs. Investments up to 1.5 lakh per annum qualify for a tax deduction under Section 80C. Moreover, the interest you earn is considered reinvested and qualifies for a fresh deduction under Section 80C. However, the final year’s interest when NSC matures is not reinvested and becomes taxable.”

Bank Fixed Deposits (FDs)

Bank FDs that have a tenure of five years are eligible for tax benefits under section 80C of the Income Tax Act. This another helpful tool for conservative investors as the risk of capital loss due to market fluctuations is nil. “The interest rate is fixed by the bank at the time of opening the FD and remains the same through the tenure. There is a sense of guarantee of capital protection in tax saving bank FDs. The interest rate can be anywhere between 5% and 7% or even higher depending on the bank and the deposit amount. Do note that all 5-year FDs may not be eligible for tax benefits. Banks offer a separate Tax Saving FD category for this purpose,” said Harsh Jain, Co-founder and COO, Groww.

Sukanya Samriddhi Yojana

A Sukanya Samriddhi Yojana (SSY) account can be one of the effective ways for a conservative investor to save taxes as it has a fixed interest rate and is backed by the government. An SSY account helps the conservative investor to protect their capital and fetch predictable returns. However, parents should be cognizant of the long lock-in period attached to this investment class.

Sukanya Samriddhi Yojana is an initiative started by the Government of India with the intent of securing the financial future for the girl child.

According to the government’s provisions, a Sukanya Samriddhi Yojana account can be opened for any girl child aged 10 and below by a parent or a legal guardian. The tenure of the SSY account is 21 years from the date of opening the account or the girl’s marriage, whichever is earlier. The amount is locked in until she attains 18 years of age after which partial withdrawal up to be permitted for educational purposes. Deposits are allowed till 15 years from the date of account opening.

“The interest rate for this scheme is announced by the government time and again. Currently, an SSY account gives an interest rate of 7.6% in one financial year. Within a financial year, the minimum amount to be invested is 250 and the upper limit is 1.5 lakh,” Jain said.

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