In our previous article, we spoke about the difference between tax saving and tax planning, the parameters that need to be evaluated, and the tax saving instruments offering variable returns (i.e. market-linked instruments).

Today dear reader, we are showcasing various tax saving instruments offering fixed returns (i.e. assured returns) for risk averse individuals.

Tax Planning the “assured return” way:

Unlike the case presented above (i.e. tax planning with market-linked instruments), if your age, income, risk profile, and financial goals do not permit you to invest in market-linked instruments (for your tax planning) along with the fact that your risk-taking ability is low; then you should plan on investing in tax saving instruments which offer you assured returns. Under these instruments, there is zero risk of erosion to your capital. Here are the tax saving instruments available under this category:
 

1. Non-Unit Linked Life Insurance Plans:
   
   Life Insurance plans can be broadly classified as “pure term life insurance plans” and “investment-cum-life insurance plans”. Pure term life insurance plans are authentic indemnification plans, as they cater to the need of security only and not investment. Investment-cum-life insurance plans on the other hand, as the name suggest, offer you an investment option along with the insurance option.
   
   Such insurance plans are offered in various forms such as endowment plans, money back plans, whole life insurance etc.
   
   We think that while you consider your insurance needs, you should ideally look at pure term life insurance plans specifically, thus keeping your insurance needs separate from investment needs.
   
   Deduction: Over here too the premium you pay for such non-unit linked life insurance plans would be eligible for tax benefit, subject to the maximum eligible amount of Rs 1.50 lakh p.a. under Section 80C. Moreover, a positive point is that at maturity the amount, that you or your beneficiary will receive, is exempt (tax free) as per the provisions of Section 10(10D) of the Income Tax Act.
    
2. Public Provident Fund (PPF):
   
   The PPF scheme is a statutory scheme of the Central Government of India. In order to invest in PPF, you are required to open a PPF account (which is irrespective of your age) at your nearest post office or public sector (nationalized) bank providing this facility.
   
   The account so opened will have an expiry term of 15 years, from the end of the year in which the initial investment (subscription) to the account is made. You can invest in the account ranging from a minimum of Rs 500 to a maximum of Rs 150,000 in a financial year to enjoy the tax saving benefit under Section 80C, and the amount credited to your account will be entitled to tax-free interest at 8.7% p.a.
   
   Deduction: The contributions you make to the accounts mentioned above, are eligible for tax benefit but subject to the maximum eligible amount of Rs 1.50 lakh p.a. as per Section 80C.
    
3. National savings Certificate (NSC):
   
   With the NSC scheme floated by the Government of India, one can invest in the same through his/her nearest post office, as the scheme is available with India Post Offices only. The certificates can be made in your own name, jointly by two adults, or even by a minor (through the guardian), and has a tenure of 5 years.
   
   Deduction: Your investment in NSC is eligible for a deduction of upto Rs 1.50 lakh p.a. under Section 80C. Furthermore, the accrued interest which is deemed to be reinvested in a financial year qualifies for deduction under Section 80C in the respective financial year. However, the interest income is taxable for the year in which it is accrued.
    
4. Bank Deposits and Post Office Time Deposits:
   
   The 5-Yr tax saving bank fixed deposits available with your bank is also eligible for a deduction under Section 80C and comes with a lock in period of 5 years. The minimum amount that you can invest is Rs 100 with an upper limit of Rs 1,50,000 in a financial year. The interest rates offered by banks under 5-Yr tax saving fixed deposits currently range in 8.00% p.a. to 8.25% p.a.
   
   Deduction: Your investment in both these schemes is eligible for a deduction of upto Rs 1.50 lakh p.a. under Section 80C. But as mentioned above, the interest earned on your investments will be taxable.
    
5. Senior Citizen Savings Scheme (SCSS):
   
   Well, the SCSS is an effort made by the Government of India to empower and financial secure senior citizens. So, in case if you are over 60 years old, you are eligible to invest in this scheme. Moreover, if you have attained 55 years of age and have retired under a voluntary retirement scheme; then too you are eligible to enjoy the benefits of this scheme.
   
   Deduction: Investments of upto Rs 1.50 lakh in SCSS are entitled to be deducted under Section 80C. However, the interest you earn will be subject to tax deduction at source.
    

Other Tax Saving Avenues:

1. Tuition fees paid for children’s education (maximum 2 children):
   
   The tuition fees that you pay to any university, college, school or other educational institution situated within India for your children’s education is also eligible for deduction under Section 80C. However, the fees paid towards any coaching center or private tuition may not be eligible. Also you need to note that this deduction is available only to an Individual Assessee and not for HUF, and is limited to Rs 1.50 lakh and a maximum of 2 children. If someone has four children, then the husband and wife both can enjoy a separate limit of two children each, so they can separately claim deduction (upto Rs 1.50 lakh) for 2 children each, subject to the amount they have actually paid.
    
2. Principal repayment on Housing Loan:
   
   You always wanted to have your dream home and now you have been able to get it with the help of a housing loan from a bank or a financial institution. But after you have acquire your home through this loan, you have the obligation to repay the principal amount of the loan on time.
   
   The “repayment of principal amount”, makes you eligible to claim a deduction upto a sum of Rs 1.50 lakh under Section 80C ; and that benefit is available with you irrespective whether you stay in the same property (Self Occupied Property - SOP), or have let it out on rent (Let Out Property - LOP).
   
   You can also claim tax benefits on the interest you pay on your housing loan, but under a separate section (Section 24 is covered in detail in an in-depth guide that’s we’ve provided at the end of this article). If you have taken a second home loan for another property, then the principal amount repaid (up to Rs 1.50 lakh) of the home loan, taken only on your self-occupied property, qualifies for deduction under Section 80C. You cannot claim deduction for the principal repayment made against the home loan on the second property.
   
   Likewise, those who are employed must also consider - House Rent Allowance (HRA), Leave Travel Concession (LTC), Education Allowance, Meal Allowance, Medical Reimbursements and ensure that your salary is optimally structured facilitating you to save tax.
    

To Conclude:

Remember that there's more to tax planning than just investment instruments specified under Section 80C. PersonalFN is of the view that although you may seek the assistance of a tax consultant while filing your returns, a self-study approach on your tax planning exercise is quite necessary. This way, dear reader, you are well-informed about those tax provisions that affect us directly.

Most importantly, leaving the tax planning exercise for the eleventh hour cannot only lead you to pay more taxes, but is hazardous to your financial well-being and gains.

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