Home » News » Personal Finance»Fixed Income - Bank Deposits
Feb 11, 2013, 04.17 PM | Source: Moneycontrol.com

Best tax saving fixed income investments under section 80C

It is again that time of the year when taxpayers invest in tax saving instruments to save their tax. Investors especially who are risk averse in nature bend towards Fixed Income instruments. Read this space to know various tax saving options under Fixed Income space that will not only help you to save taxes but also yield attractive returns.

It is again that time of the year when many of the taxpayers invest in tax saving instruments to save their tax. There is a large population of these investors which is risk-averse and does not want to expose itself to the risk of equity investments. For these investors, there are many fixed income options which can help them achieve their target of saving tax under section 80C and at the same time provide good returns also on their investments.

PPF: Public Provident Fund, or popularly called PPF, is the most attractive tax-saving fixed income option giving a tax-free return of 8.80% per annum compounded annually. The effective rate of interest for a person in the 30% tax bracket works out to approximately 12.73% [8.80%/(1-0.309)], which I think is extremely good, considering it also gives you a tax deduction.

Though the government has decided to adjust the interest rate on PPF every year on April 1st and most likely it is going to fall next financial year, still it would remain very attractive due to its tax-free interest income status. The maximum you can invest in PPF is Rs. 1 lakh per financial year.

You can get a PPF account opened in post offices, bank branches of SBI and its associate banks and select private banks such as ICICI Bank. PPF carries a term of 15 years but it can be extended for additional 5 years. A loan facility of up to 25% can be availed from the 3rd financial year till the 5th financial year while a withdrawal of up to 50% is allowed from 6th financial year onwards.

Check out fetaures of Small Savings Schemes designed to provide safe and attractive investment options

Senior Citizen Savings Scheme (SCSS): Meant for senior citizens aged 60 years or more, SCSS offers 9.30% per annum. The interest payable quarterly is taxable and subject to TDS if the interest amount crosses Rs. 10,000 in a financial year. It has a maturity period of 5 years which can be extended for a further period of 3 years. The maximum you can invest in SCSS is Rs. 15 lakhs but the exemption u/s. 80C would be limited to Rs. 1 lakh only.

5-year Bank FDs: A faster life these days makes the investors opt for simpler investments and fixed deposits are the most simple to invest option. Different banks offer different interest rates on their tax-saving FDs and you can visit this link to check out the rates offered. These FDs have a lock-in period of 5 years and the interest is taxable.

5-year NSCs: National Saving Certificates (NSCs), offered by the post offices, give an interest rate of 8.60% per annum compounded half-yearly. The interest is paid at maturity but it is taxable annually. With these NSCs, the amount invested as well as the interest earned every year qualify for a deduction under section 80C. Post offices do not deduct any tax at source though.

10-year NSCs: During the last financial year, the government introduced NSCs with a maturity period of 10 years. These certificates currently offer 8.90% per annum compounded half-yearly. Rest of their features are the same as that of 5-year NSCs.

Post Office Time Deposit Scheme: Post offices also offer tax-saving time deposit with a maturity period of 5 years carrying 8.50% per annum interest rate. The interest is payable annually but compounded quarterly. Also, though the interest paid is taxable but TDS is not deducted by the post offices.

Term Deposit Schemes from Government Companies: A few government companies or financial institutions like National Housing Bank (NHB), HUDCO, NABARD etc. also offer tax-saving term deposits with a lock-in period of 5 years. The interest payable is taxable and subject to TDS if the interest amount crosses Rs. 5,000 in a financial year.

NHB offers 9.25% per annum compounded quarterly to the general investors and 9.85% to the senior citizens. NHB is wholly owned by the RBI and hence the deposits are considered as risk-free. It has also been assigned a rating of ‘FAAA’ by CRISIL.

It is important to note that except PPF, the interest rates offered currently on these investments will remain fixed throughout their respective tenures even if the government announces new rates starting April 1, 2013 and in the subsequent years.

ADS BY GOOGLE

Ask the Experts

Get your Personal Finance queries answered

  • Q

    Interest rates are going to go down. And all my fixed deposits will be maturing next year. I will have to renew my fixed deposits next year at lower rate of interest. What is the way out?

    A

    Interest rates keep fluctuating due to various micro- and macro- economic factors. There is never an ideal rate of interest. In a high inter...

  • Q

    If I put Rs 2 lakh in PPF, how much tax rebate I will get?

    A

    As per the existing guidelines and rules a person cannot deposit more than 1.5 lacs in one PPF account. However you can deposit money in the...

  • Q

    I want to buy online term life insuance plan. Which is the best one? Should I go for single premium or regular premium policy?

    A

    Single premium term insurance policies don?t make much sense. Why pay such a large amount at one go when you have the option of paying in sm...

  • Q

    I want to invest some money with at least ten years view. I dont want share market risk. Can I invest in NSC? Is there any other investment option?

    A

    NSC or National Savings Certificate is a safe investment scheme offered by the Central Government. It is an ideal option for investors with ...

  • Q

    Is it a good idea to invest in asset allocation funds? if yes, please suggest some good fund to invest money. I am 35 years old and can invest Rs 10000 per month.

    A

    Asset Allocation Funds are for those investors who want to take an exposure into different asset classes but do not wish to create their own...

  • Q

    My CA says that I have to pay tax on interest accrued on my FD of Rs 20 lakh. I have submitted form 15H in all banks. Is it necessary to pay tax in this case?

    A

    In case of interest on fixed deposits which is taxable under the head ?Income from other Sources? a taxpayer has two choices. Either you can...

  • Q

    Please suggest a good investment option of land in South India. I want to buy a land parcel of around 2 acres.

    A

    If you take a look at the South Indian real estate market, Bangalore has emerged as a clear winner. Due to the strong presence of IT/ITeS an...

  • Q

    I want to invest Rs 20000 per month. I have identified Reliance Small Cap Fund and DSPBR Micro cap fund for investment. I can hold to investments for two years. Is it a good idea to invest in these schemes? How much returns I will be getting?

    A

    If you are an aggressive investor, you can consider investing in either of the 2 funds.DSPBR Micro Cap My suggestion is that if you are inve...

  • Q

    I want to save my money for retirment Please suggest a good insurance policy

    A

    For retirement it is advisable to use multiple investment instruments and not just life insurance policies. If you have 15 years or so for r...

  • Q

    IS IT a Good time to invest in GOLD ?

    A

    Currently the outlook for gold is bearish/negative. However if you are planning for a long-term investment in gold it is ideal to invest the...

  • Q

    I have retired from my job in November. I have got Rs 48 lakh from my employers, by way of epf, gratuity and other benefits. Should i invest in senior citizen scheme of LIC? How about pension plans from LIC?

    A

    1. You can invest Post office Senior Citizen Scheme. 2. You also should invest lumpsome in MIP in post office and get monthly interest. 3. K...

  • Q

    I want to save Rs 1 crore for my retirement when i turn 60. Now I am 42 years old and have fixed deposits worth Rs 18 lakh.What should I do to reach Rs 1 cr mark?

    A

    start investing a minimum 5000 per month in mutual fund and increase 10% to 20% every year....

  • Q

    I want to save on my utility bills and fuel expenses.Please suggest a good credit card for me.

    A

    Yes, you will be able to save on Utility bills and fuel expenses through the cash back schemes offered by some of the credit card companies....

  • Q

    Suggest couple of equity mutual funds for me. I am keen to invest Rs 25000 per month for next couple of years. I can remain invested for at least five years?

    A

    Asset Allocation Funds are for those investors who want to take an exposure into different asset classes but do not wish to create their own...

  • Q

    I am a senior citizen.I received interest of Rs .1,70,000/- on FD.I have duly filled 15G form.I have NO other source of income.Have I to pay Income tax on this interest or can it be excempted?

    A

    Sir, please note if you are less than 80 years but more than 60 years of age, your total income upto Rs 3,00,000 is exempt from tax, you are...

  • Q

    Please suggest a good money back policy for me. I am 27 years old and want to accumulate Rs 10lakh over 10 years.

    A

    If you are a fan of traditional money back policies, go in for the LIC New Money Back Policy of 20 or 25 years. I would suggest you go in fo...

  • Q

    I want to buy a life insurance for my brother Please suggest a good policy. He is 19 years old. he should get Rs 5 lakh when he turns 25 years.

    A

    Best to go in for a ULIP in case he is looking to grow the money also. Go in for a ULIP like HDFC Click 2 Invest which is very low on charge...

  • Q

    In 2013, I bought an Endowment policy from LIC. Premium for that is around 35K per year. Now i understand, this was a big mistake and i want to go for a term insurance policy. I have already paid two premiums in 2013 and 2014 and I want to make this policy paid-up. Can i pay one more premium this year and make that endowment policy paid-up ? Or is there any better alternative ? Please suggest.

    A

    Yes, you can convert to a paid-up policy after 3 years premiums have been paid. I would recommend that you surrender the plan and take back ...

  • Q

    Is zero depreciation cover a good option under auto insurance? I have plans to buy honda city in January

    A

    Zero depreciation is a good option to along with the standard car insurance plan. By paying a slightly increased premium you can ensure that...

  • Q

    I am 20 years old,I am getting 17+ % or returns from share in my portfolio consistently for the last 6 months.should i think about a career in stockbroking?

    A

    Its nice to note that your portfolio has been gaining such high returns, however it might be too early to take a call and make stockbroking ...

Explore Moneycontrol

Copyright © e-Eighteen.com Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of moneycontrol.com is prohibited.