Not A Risk Taker? Here Are 5 Low-Risk Tax Saving Options You Can Invest In

Every year, the month of March is a busy one for those taxpayers who tend to keep the task of saving for taxes until the last minute. Such lazy taxpayers end up rushing to save tax in the last month of the financial year, i.e., March.

While there are lots of tax-saving options, such as ELSS, home loan EMI repayment, and donations, and many outside the crowded Section 80C, the tax-saving investment options for those who are risk averse tend to be different.

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If you too are a taxpayer who does not wish to take much risk with their investments but at the same time needs to save tax as well, here are some relatively safer tax-saving investment options you can opt for.

Tax Saving Investment Options For Risk Averse

1.Public Provident Fund (PPF)

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Managed by the Government of India, PPF is one of the safest investment options in Section 80C. Both the principal as well as the interest components are backed by the sovereign guarantee. Currently, PPF offers an interest rate of 7.1% p.a. compounded annually, which is reviewed every quarter by the Ministry of Finance, based on the government bond yields. The minimum deposit for opening a PPF is Rs 500.

A big advantage that PPF holds over many other tax-saving instruments is that it falls into the EEE (exempt, exempt, exempt) category. So, the amount invested in PPF, the interest earned on PPF, and the maturity proceeds of PPF are all tax-free.

While the biggest drawback of the PPF scheme is its long lock-in period of 15 years, it does offer some degree of liquidity in the form of facilities such as partial withdrawals and premature closure. Partial withdrawals are allowed only once a year, starting from the 7th year of subscription. Whereas premature closure is permitted after 5 years, either for treating life-threatening diseases of the account holder, spouse, dependent children, or parents, or for funding the higher education of the account holder.

Premature closure has also been allowed for two new conditions in recent years- in case of higher education for dependent children of account holder, and in case of change in residential status of account holder.

Also Read: PPF vs. Bank Tax Saver FD¡ªWhich One To Choose For Tax Saving?

2.Bank Tax-Saver FDs

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In terms of capital protection and certainty of return, tax-saving FDs from banks score highly. Bank Fixed Deposits, including the five-year tax-saving FDs, are covered under the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the RBI, for an amount of Rs 5 lakh per bank and per depositor. The lock-in period is five years, during which the bank FD cannot be withdrawn.

However, tax-saving bank FDs¡¯ biggest disadvantage lies in the taxability of the interest income. For bank FD investors, tax liability does not end with a TDS deduction. Interest income from FDs, even in the case of five-year tax-saving FDs, is included in your annual income and then taxed in accordance with your income tax slab.

Bank FD interest rates vary widely across public and private sector banks, with the 5-year tax-saving FD's rate currently hovering in the range of around 6.5%¨C7.5% p.a.

3. National Savings Certificate (NSC)

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Another low-risk, tax-saving investment option is NSC. NSC stands for National Savings Certificate; it is a savings and investment scheme that can be set up through a post office.

Currently offering a 7% interest rate, NSCs can be opened with a minimum contribution of Rs 1,000, by adults, either solely or jointly. A minor above 10 years old can also open it, and guardians on behalf of minors can open it too.

NSC investments are eligible to be claimed as a tax deduction under Section 80C. The NSC deposit shall mature after five years from the date of the deposit.

As per the India Post website, NSC may not be prematurely closed before 5 years except under the following conditions:

(i) On the death of a single account or any or all the account holders in a joint account

(ii) On forfeiture by a pledgee who is a Gazetted Officer

(iii) On order of the court

4. Voluntary Provident Fund (VPF)

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The VPF (voluntary provident fund) is another small savings scheme that allows an EPF subscriber to invest over and above his mandatory EPF contribution.

VPF is a non-compulsory investment that can be made by salaried employees over and above the EPF, i.e., Employees Provident Fund. VPF is a government-backed savings scheme with low risks and quite high returns.

An EPF subscriber can contribute up to 100% of his or her Basic and Dearness Allowance (DA) component towards VPF. The contribution qualifies for tax benefits under Section 80C. VPF earns the same interest rate as EPF (the interest rate declared is currently 8.5%) and is completely tax-exempt (EEE) just like EPF.

But keep in mind that neither employees nor employers are under any obligation to contribute to the VPF. It is completely voluntary.

And once the contribution is chosen in VPF, it cannot be terminated or discontinued before the base tenure of 5 years gets completed. The interest rate of the Voluntary Retirement Plan is decided by the Government of India at the start of each financial year.

Also, the VPF account can be transferred from one employer to another upon changing jobs.

VPF allows partial withdrawals as loans with the possibility of complete withdrawals. If the withdrawal happens before the 5-year minimum tenure, then tax will be applicable on the accumulated maturity amount. Once the employee resigns or retires from employment, the final maturity amount is paid to him. At the time of the untimely death of the account holder, the nominee can take possession of the accumulated funds in the VPF account.

Also Read: Govt May Increase Mandatory EPF Contribution Limit To Rs 21,000

5.Sukanya Samridhdhi Yojana

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Taxpayers who have a girl child can invest for her future and at the same time save tax through this scheme. SSY is a government programme that encourages investments in girl children's futures, such as education and marriage. Only one SSY account for each girl child can be opened. SSY accounts can be opened at any post office or authorised branch of a commercial bank.

A SSY account can be opened at any time between the birth of the girl child and the time she reaches the age of 10 years.

As far as beneficiaries of SSY are concerned, any girl child who is a resident Indian is a beneficiary under SSY from the time of opening the account till the time of maturity or closure.

The guardian can deposit the amount and operate the account until the girl child attains the age of 18. The SSY account shall be mandatorily operated by the girl child after she attains the age of 18 years. The minimum deposit amount for an SSY account is Rs. 250 (this amount was previously Rs. 1,000), thereafter in multiples of Rs. 50, and the maximum is Rs. 1.5 lakh in every financial year, up to 15 years. Deposits can be made through cash, cheque, demand draught, or online transfer.

The current rate of interest for SSY accounts is 7.6% p.a. The maturity period for SSY is 21 years from the account opening or upon her marriage after attaining 18 years. However, contributions have to be made for only 15 years. Thereafter, the SSY account will continue to earn interest until maturity even when no deposits are made into it.

Remember that no interest can be earned after the completion of the SSY account¡¯s tenure, i.e., after 21 years from account opening. Also, no interest accrues after the girl child becomes a non-citizen or a non-resident of India. Any deposit made above the maximum cap, i.e., Rs. 1,50,000 per year, will not earn any interest and can be withdrawn anytime by the depositor.

Also, you can withdraw 50% of the account balance as of the previous financial year¡¯s end to meet the educational expenses of your girl child. This can be obtained by submitting proof of admission.

As far as tax benefits are concerned, investments made in the SSY scheme are eligible for deductions under Section 80C, subject to a maximum cap of Rs 1.5 lakh. The interest that accrues on this account, which gets compounded annually, is also exempt from tax under Section 10 of the Income Tax Act. Also, proceeds received upon maturity or withdrawal are exempt from income tax.

Also Read: How Much Tax You Pay For Your Investments

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