Without financial planning, taxes can take a significant chunk out of your income. However, with strategic planning and a keen understanding of the tax system, you can optimize your savings and reduce your tax liability. This process involves leveraging various saving schemes that offer tax benefits.
In India, the government encourages citizens to save and invest by offering tax deductions on investments in certain saving schemes. These schemes not only help you grow your wealth but also provide tax relief, making them an essential component of effective financial planning.
In this blog, we will guide you through the maze of saving schemes and tax benefits. We will delve into the specifics of various saving schemes, understand their tax benefits, and explore strategies to optimize your savings.
By the end of this guide, you will be equipped with the knowledge to make informed decisions about your finances, enabling you to maximize your savings and minimize your tax liability.
If you are looking for better financial insights and want to take control of your financial future, you can also connect with our Cube Wealth Coaches. They can help you with personalised investment advice and create a customized financial plan tailored to your goals and risk tolerance.
Understanding Saving Schemes
Saving schemes are financial instruments that help individuals achieve their financial goals over a specific period. These schemes are launched by the Government of India, public/private sector banks, and financial institutions. The government or banks decide the interest rate for these schemes, and they are periodically updated.
In India, there are a variety of saving schemes, each with its unique features, benefits, and tax implications. Here are some popular saving schemes in India:
- Public Provident Fund (PPF): A long-term investment option offering an attractive interest rate of 7.1% p.a. and tax benefits under Section 80C.
- National Saving Certificate (NSC): A fixed income investment scheme with a 5-year maturity period and an interest rate of 7.7% p.a.
- Senior Citizen Saving Scheme (SCSS): A government-backed savings instrument for senior citizens, offering an interest rate of 8.2% p.a.
- Post Office Monthly Income Scheme (POMIS): A five-year investment with a monthly income, offering an interest rate of 7.4% p.a.
- Employee Provident Fund (EPF): A retirement benefit scheme offering an interest rate of 8.15% p.a.
- National Pension Scheme (NPS): A government-sponsored pension scheme, offering returns between 10% p.a. to 15% p.a., based on the lock-in period and asset class.
Each of these schemes serves a different purpose, such as retirement planning, earning regular income, or saving for future needs. The choice of scheme depends on your financial goals, risk appetite, and investment horizon.
Tax Benefits Of Saving Schemes
Saving schemes in India not only help individuals grow their wealth but also provide significant tax benefits. These tax benefits are offered under various sections of the Income Tax Act, 1961. The following table dictates the tax benefits available under different saving schemes in India:
| Saving Scheme |
Interest Rate |
Maturity Period |
Tax Benefits |
Purpose/Features |
Liquidity |
Maturity |
| Public Provident Fund (PPF) |
7.1% p.a. |
Long-term |
Interest and returns exempt from income tax |
Long-term investment, tax benefits under Section 80C |
Low (penalty for premature withdrawal) |
Short to medium term (7 days to 10 years) |
| National Saving Certificate (NSC) |
7.7% p.a. |
5 years |
Investment eligible for tax deductions under Section 80C; Interest is taxable, but qualifies for deduction under Section 80C |
Fixed income investment, tax benefits under Section 80C |
High |
No maturity |
| Senior Citizen Saving Scheme (SCSS) |
8.2% p.a. |
Varies |
Investment qualifies for tax deduction under Section 80C; Interest earned is taxable |
Savings for senior citizens |
Moderate (subject to exit load and lock-in period) |
No maturity |
| Post Office Monthly Income Scheme (POMIS) |
7.4% p.a. |
5 years |
No tax deductions on investment; Interest income is fully taxable |
Regular monthly income |
High |
No maturity |
| Employee Provident Fund (EPF) |
8.15% p.a. |
Till retirement |
Employee's contribution eligible for tax deductions under Section 80C; Interest and maturity amount exempt from income tax |
Retirement benefit scheme |
Moderate (subject to market price and liquidity) |
Medium to long term (1 year to 30 years or more) |
| National Pension Scheme (NPS) |
10%-15% p.a. |
Till retirement |
Contributions eligible for tax deductions under Section 80C, 80CCD, 80CCD, and 80CCD; 60% corpus at retirement is tax-free |
Government-sponsored pension scheme, returns based on lock-in period and asset class |
Moderate (subject to storage and transaction cost) |
No maturity |
Optimizing Your Savings: Tax-Saving Strategies
Tax-saving strategies are crucial for optimizing your savings. By exploring various tax-saving investment options, you can significantly reduce your tax liability. Here are some strategies that can help you optimize your savings.
- Invest in Saving Schemes: Numerous government-mandated schemes offer high returns on total investments along with tax waivers. Individuals can claim up to Rs 1.5 lakh spent on such investments as tax waivers on total annual income, under Section 80C of the Income Tax Act. Some of these schemes include Senior Citizen Savings Scheme (SCSS), Sukanya Samriddhi Yojana (SSY), National Pension Scheme (NPS), Public Provident Fund (PPF), and National Pension Scheme (NPS).
- Buy a Home Loan: Buying a home loan can provide significant tax benefits under Section 80C. The whole annual income spent on repayment of the principal borrowed amount is eligible for Section 80C deductions of up to 1.5 lakh. Section 24 (b) allows for tax exemption on the interest portion of a house loan up to Rs 2 lakh per year.
- Buy a Health Insurance Policy: People can claim tax deductions under Section 80D for the portion of their annual taxable income spent on premium payments. Depending on the age of the covered, different sums are exempt from such income tax computations.
- Buy Life Insurance Plans: Section 80C of the Income Tax Act provides for premium payments, and Section 10 (10D) provides for the sum promised received at maturity or early death of the insured, whichever occurs first.
By implementing these strategies, you can optimize your savings and reduce your tax liability. However, it’s important to choose the strategies that align with your financial goals and risk appetite.
How Cube Wealth Can Help You Save Your Taxes
At Cube Wealth, we offer you a diverse range of investment options. Furthermore, our Cube Wealth Coaches provide you with personalised investment advice based on your financial goals and risk appetite.
Additionally, our platform provides easy access to top-performing mutual funds and other investment products that can help you build your wealth and maximize your tax savings. With Cube Wealth, you can easily track and manage your investments in one place, saving you time and effort. Our user-friendly interface and expert guidance make it simple for you to make informed investment decisions that align with your tax-saving goals.
Conclusion: Your Path to Financial Security
Saving Schemes are an excellent way to secure your financial future. They not only provide a disciplined and structured way to save money but also offer significant tax benefits. By investing in these schemes, you can grow your wealth while reducing your tax liability.
Furthermore, the variety of saving schemes available means that there's something for everyone, regardless of your financial goals or risk appetite. So, whether you're saving for retirement, a new home, or your child's education, saving schemes can help you achieve your goals while optimizing your savings. Remember, the key to financial security is not just about making money, but also about strategically saving and investing it.
Happy saving!
