Taxes: Tax Saving Investment Options And PF Details
Some safe tax saving plans below offered by Indian Government. Please note that these are prone to changes at the discretion of the Indian government. Rates vary based on the income slab of the investor, service provider company etc.
Tax Saving Plan
Annual Interest Rate
Post Office Deposits
Post Office Time Deposits:
1. Option for 1, 2, 3 or 5 year deposits.
2. No risk- Supported by Indian Government.
3. Accounts closed after 6 months & before 1 year accrue no interest.
4. Interest rates for various investment durations are:
- 1 Year : 7.7%
- 2 Years: 7.8%
- 3 Years: 8.0%
- 5 Years: 8.3%
5. Effective April, 2012: Rate for Senior citizens savings scheme (SCSS) is 9.3% for 5 years.
8.5% to 9.5%
Section 80C: Allows Rs. 1 lakh deduction limit across different options
1. Infrastructure Bonds: Deduction from income allowed upto Rs. 20,000. This deduction is over and
above Rs. 1 lakh. Available via issues from various banks at about 8.5 to 9.5% interest rate.
2. Tuition Fees: Amount of upto Rs. 1 lakh paid as tuition fee for education of upto 2 children can be
deducted from total income. Deduction allowed only on the 'tuition' fee and no other expenses.
3. Senior Citizens Savings Scheme: 5 year scheme, offers safe and assured returns of 9.3% payable
quarterly. Interest income is fully taxable. Available in certain banks/post offices for 60+ aged people.
4. Home Purchase/Loan Deductions: Repayment of Principal portion of the home loan upto Rs. 1 lakh
is eligible for deduction. Interest Payment of upto Rs. 1.5 lakh on loan taken to buy house for 'self use'
is exempt from tax. Stamp fee and registration of the house is also tax-deductible.
5. Other tax saving investment options: You may also explore 'Post Office Time Deposits' or 'National
Saving Certificates (NSC)' which are described below.
Other Section Deductions:
1. Premium for Mediclaim Policy: Under Section 80D, upto Rs. 15,000 for purchase of mediclaim policy is
eligible for deduction. In addition to this, you can claim additional Rs. 20,000 deduction for purchase of
mediclaim policy if your parents are 'senior citizens'.
2. Donations to specified charities: Eligible for deduction under Section 80G.
3. Education Loan Interest: Interest paid while repaying education loan is fully tax deductible. This is not
part of Rs. 1 lakh limit under Section 80C but is separately available under Section 80E.
4. Physical Disability/Diseases: Upto Rs. 60,000 if you or dependant suffer from critical disease/disability.
National Saving Certificates:
1. Certificates can be purchased/encashed from any Post Office.
2. Exempted from Wealth tax. Liquidity: Money locked for 5 or 10 years.
3. Annual accrued interest is eligible for additional rebate.
4. Interest: 8.6% for 5 years and 8.9% for 10 years.
5. Premature encashment not allowed except at a discount in case of death of the holder.
Public Provident Fund(PPF)/Employee(EPF):
1. PPF is a 15 year investment plan offering Interest earned is tax free.
2. Liquidity: Withdrawal possible after 5th year in PPF.
3. Annual investment of upto Rs. 1 lakh is allowed in PPF.
4. Your PPF account remains active even with a minimum contribution of Rs. 500 each year. Amount
deposited is eligible for a tax rebate. Interest is compounded annually, payable at maturity.
5. How many PPF accounts can one person have?: Only 1 PPF account in his/her name.
You may open an account for your minor child a guardian.
6. Joint PPF Account?: Cannot open a joint account but can have a nominee.
7. Where to open?: Designated post offices or public sector banks.
8. Public Providend Fund (PPF) Returns and Tax Applicability: PPF interest return/withdrawals are
completely tax-free. Return is currently at 8.8% and rate is fixed every year.
9. Employee Providend Fund (EPF) Withdrawal/Transfer after changing job:
a) After changing job, there should be a gap of 60 working days from the past employment to current
one to start the PF withdrawal process.
b) After PF application is filed, PF office takes approx 45 working days to process the application and
transfer amount directly into account holder's single (not joint) Savings Bank Account.
10. Employee Providend Fund (EPF) Tax Applicability:
a) For tax free withdrawal, one should be continuously employed for 5 years with a single employer.
b) If you have worked less than 5 years in 1 company & got your PF transferred from old to the new
company PF account, then 5 year continuous rule will apply with the new company.
c) Your contribution to PF account is totally tax free,but the interest accrued on your PF contribution
will be taxed under the head 'Income from other sources'.
d) Also, employer contribution to your PF account is totally taxable & interest thereon is also taxable
but you will get a relief under section 89(1) to the extent ot the tax liability.