Making tax-saving investments as soon as practicable for the fiscal year 2022-23 will allow you to save more for your tax-free returns. Investing under section 80C of the Income Tax Act is the most popular option for individuals and Hindu Undivided Families (HUFs) to save tax in a financial year since an individual can claim a maximum deduction of up to Rs. 150,000 per year. ELSS is the investment product with the lowest lock-in duration under section 80C, but market-based returns can only be achieved if you stay invested for a long time. As a result, investors seeking stable returns or income from their tax-saving investments may consider bank FDs, PPFs, and other financial products. For the financial year 2022-23, tax savers under the old tax regime can claim a maximum deduction of ₹1.5 lakh in a financial year, and a person in the maximum tax slab of 30% can save tax of ₹46,800, including the 4% cess. Here are the four fixed income assets for risk-free investors that can be used to save money on taxes under section 90C for the current fiscal year.
Sukanya Samriddhi Account
This small savings scheme at the post office can be established in the name of a girl child under the age of ten years by the guardian, and accounts can be opened for up to two girls in a family. The current rate of interest is 7.6% per annum for those who start an account with a minimum deposit of INR. 250 and a maximum deposit of INR. 1,50,000/- in a financial year, with a maximum deposit up to 15 years from the date of opening. Interest is determined for the calendar month on the lowest balance in the account between the closing of the fifth day and the end of the month and is credited to the account at the conclusion of each financial year. Deposits are eligible for a deduction under section 80C, therefore interest generated is tax-free. One can claim account maturity after 21 years from the date of account opening, or after the marriage of a girl child at the age of 18 years. After a girl child reaches the age of 18 or passes the tenth grade, she can withdraw up to 50% of the amount available at the end of the preceding F.Y., and the account can also be closed prematurely after 5 years in case of emergencies.
Public Provident Fund (PPF)
PPF is one of the most popular tax-saving schemes since it not only pays 7.1 per cent per year (compounded annually) but also allows account holders a deduction under section 80C of the Income Tax Act, making the interest earned tax-free. With a minimum deposit of INR. 500/- and a maximum deposit of INR. 1,50,000/- in a financial year, a single adult resident Indian or a guardian on behalf of a minor/person of unsound mind can open a PPF account. An account holder can make one withdrawal after five years, omitting the year the account was opened, and the amount of the withdrawal can be up to 50% of the total balance at the end of the fourth preceding year or the end of the preceding year, whichever is lower. After 15 years, the account will mature, making PPF the account with the longest lock-in tenure under section 80c. Upon maturity, one has the option of receiving a maturity payment, keeping the maturity amount in his or her account without making further deposits, extending his or her account for another block of five years, and so on. After 5 years from the end of the year in which the account was established, one can make an early withdrawal. The account will be closed and the account balance will be handed to the nominees in the event of the account holder’s death.
Senior Citizen Saving Scheme (SCSS)
Apart from bank fixed deposits, one of the most popular tax-saving investments for elderly persons is the Senior Citizen Savings Scheme (SCSS). The account can be started by anyone over the age of 60, and it can be opened in their own name or jointly with their spouse. An account can be started with a single deposit of INR.1000/- and a maximum limit of INR 15 lakh, after which a subscriber can earn a 7.4 per cent return per year which is payable on a quarterly basis. Interest is taxable if total interest in all SCSS accounts surpasses Rs.50,000/- in a financial year, and TDS shall be deducted from the total interest paid under SCSS. The account will mature after 5 years from the date of inception; however, in the event of the account holder’s death, the account will generate interest at the rate of a PO Savings Account from the date of death. Within one year of maturity, the account holder can extend the account for another three years, and SCSS can be prematurely closed subject to penalty.
5 Year Bank Fixed Deposits
Bank fixed deposits are one of the most popular risk-free investments, and in the present environment of rising interest rates, bank FDs are shining even brighter. Tax saving fixed deposits have a 5-year lock-in term and can be opened with as little as ₹100 and a maximum deposit limit of ₹1.5 lakh, allowing individuals to claim section 80C tax benefits, however, interest earned is taxable as per the tax slab bracket of the investor. The account can only be established individually or jointly, and the tax benefit under 80c will only be provided to the first or primary holder in the case of joint deposits. Multiple interest payment options include monthly, quarterly, or principal reinvestment in tax-saving FDs and the most crucial feature of tax-saving FDs is that neither early withdrawal nor auto-renewal are permitted. When the interest due on an FD surpasses Rs.40,000/- (Rs. 50,000/- for senior persons) in a financial year, a TDS of 10% would be deducted. Small finance banks are presently giving roughly 7% returns on tax-saving fixed deposits, which is the highest in the market.