Here are some tax-saving options which can be carried out online and will give you the required kick start to save and invest.
1. Five-year tax-saving fixed deposits
Fixed deposits are investment instruments offered by banks and various financial institutions. You need to deposit a lump sum amount, and in return, you will get a fixed rate of interest throughout the investment tenure.
The aggregate interest earned is entirely taxable. The interest rates vary from bank to bank. Currently, the rate ranges from 5.5% – 7%. Senior citizens are entitled to earn an average of 0.5 percent more than the actual rates.
If you have fulfilled all formalities relating to Know-Your-Customer (KYC), all you need to do is log into internet banking and invest online. The proceeds from redemption along with interest are credited directly to your bank account. Fixed deposit accounts are not dependent on market variations and hence a guaranteed interest rate is earned till maturity.
Investments in an insurance plan can be carried out through debit cards or internet banking. The underwriter of the policy might call for medical tests and depending on the final results, premiums are decided.
One can purchase unit-linked insurance plans (“ULIPS”) by visiting an insurer’s website. As there is no intermediary involved, there is no commission that is required to be paid to any agent in the case of ULIPS purchased online. The process of applying and making payments can be carried out through net banking or credit card. It is however important to quote your Aadhaar number while purchasing any policy. Any income received through ULIPS is exempt from tax under section 10(10D) provided the premium paid under the policy does not exceed 10% of the assured sum. Also, as per the latest amendment in Finance Budget, 2021, the ministry has proposed to tax ULIPS as equity-oriented mutual funds where the premium paid by a taxpayer is more than Rs. 2.5 lakhs in a year.
4. Public Provident Fund
A Public Provident Fund (PPF) account can be opened with any designated bank. All you have to do is fill-up the form online by logging in through your internet banking account and submit it along with other required documents at the bank branch for verification. If you already have a PPF account, you can transfer the funds online through internet banking. You can also set a standing instruction to transfer funds to your PPF account. All deposits made in the PPF are deductible under Section 80C of the Income Tax Act. However, you can claim a maximum of Rs. 1.5 lakhs as a deduction under section 80C. The accumulated amount and interest are exempt from tax at the time of withdrawal.
A PPF account cannot be closed before maturity. However, a PPF account is easily transferrable. In case of the demise of the holder, a nominee can file for the closure of the account.
5. National Pension System
The national pension system (NPS) is a retirement plan which provides you a regular inflow of monthly income. The money deposited in NPS is invested in a various schemes and securities including the equity market. It gives the benefit of equity exposure as well. The taxpayer can claim an additional deduction of Rs.50,000 under section 80CCD(1B) in addition to a deduction of Rs.1.5 lakh. Hence, a maximum of Rs. 2 lakhs can be claimed as a deduction.
6. Sovereign Gold Bonds Scheme (“SGB”):
SGBs are government securities and are considered safe. Their value is denominated in multiples of gold per one gram. One can purchase SGB through SEBI authorized agents only. On redemption, the current value of your bonds will be deposited into your registered bank account.
As a low-risk investment, it is perfect for investors with a low-risk appetite. It is easy to store this in dematerialized form. The current interest rate for SGB is 2.50% annually which is paid twice a year at a nominal value. In addition to the interest income, in case you sell the bond, the difference between the sale value and your purchase price also boosts your income. This income is chargeable under “Capital Gains”.
The interest on Sovereign Gold Bonds is chargeable to tax. If you hold the bond for the requisite lock-in period, no tax is required to be paid on any income generated on redemption because of the market price. A minimum lock-in of eight years is required, however, an investor can exit the scheme after redeeming the SGB after five years. It is important to note that no deduction under section 80C is available. In simple terms, the taxability of SGB can be summarized hereunder,
|Interest Income||Fully Taxable||Income from Other Sources|
|Redemption after completion of the lock-in period (minimum eight years)||Exempt||N/A|
|Redemption after five years but before lock-in-period||Fully Taxable||Income from Capital Gains|
|Sale of bonds to a third party before redemption||Fully Taxable||Income from Capital Gains|