Interest rates of tax saving debt investments | Economic Times

Those looking for tax-saving investment options with low risk and volatility, safety of principal amount and assured returns, can consider fixed income options like tax-saving fixed deposits, Employee Provident Fund (EPF), National Savings Certificates (NSC), Sukanya Samriddhi Account Scheme, Senior Citizen Savings Scheme and the Public Provident Fund (PPF). However, do keep in mind that these tax-saving investment options will be relevant to you only if you continue with the old tax regime. If you opt for the new, concessional tax regime, then you will not be able to claim common deductions such as section 80C for investment/expenditure on the specified avenues, section 80D for premium paid on health insurance policy, tax exemption on house rent allowance etc.Here is a look at six fixed income options that can help you save tax.1. EPF and VPFEmployees' Provident Fund (EPF): If you are a salaried employee, covered under the Employees' Provident Fund (EPF) Scheme, then your contributions to EPF will qualify for tax break under section 80C. The interest earned on the EPF contributions in fixed annually by the Employees' Provident Fund Organisation (EPFO) in consultation with the government; for the financial year 2020-21 the interest rate has been proposed to be set at 8.5%. The interest earned is entirely exempt from tax in the hands of the employee. Do keep in mind that effective from April 1, 2021, if the annual contribution exceeds Rs 2.5 lakh, then interest earned on the excess contribution will be taxable in the hands of an employee. Also read: Tax on PF interest will change the way we invest in it: How the Budget hits your PFAs per EPF scheme rules, an employee makes contribution of 12% of his basic salary plus DA on a monthly basis. Therefore, someone having Rs 20,000 as his monthly basic will be contributing Rs 2,400 per month or Rs 28,800 annually. This is far less than the permissible limit of Rs 1.5 lakh deduction under section 80C.Voluntary Provident Fund (VPF): Additional investment in EPF can be made via Voluntary Provident Fund (VPF). The benefit of VPF is available only to salaried persons covered under EPF. The rules for EPF and VPF are the same. VPF will be deducted from your salary and thereby decreasing your take-home salary. Both EPF and VPF are EEE (exempt-exempt-exempt) investments. The EEE status means that the amount invested, interest earned, and maturity proceeds are exempt from tax.Budget 2021 has proposed that interest earned on EPF/VPF contributions exceeding Rs 2.5 lakh in a financial year will be taxable in the hands of an employee. This will come into effect from April 1, 2021.Interest rate offered: 8.5% for FY 2020-21Maximum investment amount: EPF: 12% of basic + DA; VPF: Up to 100% (Including EPF contribution) of basic salary and DAHow to invest: EPF is deducted mandatorily by the employer; for VPF employee needs to inform his employer by submitting the same in a prescribed format and the employer then has to start deducting the same.Tenure: Same as EPF2. Public Provident Fund (PPF)PPF is one of the most popular tax-saving investment avenues as it enjoys EEE tax status. Any Indian resident, salaried, self-employed or even a housewife can invest in PPF. An individual also has the option to open a PPF account on behalf of his minor child. One can make minimum Rs 500 contribution and maximum Rs 1.5 lakh in a financial year. The interest under this scheme is calculated on a monthly basis but is credited annually.Interest rate offered: 7.1% (for January-March 2021 quarter)Maximum investment amount: Rs 1.5 lakh in a financial yearHow to invest: You can invest via banks, post office, and even using your Internet banking.Tenure: 15 yearsAlso Read: Know all the rules and benefits of PPF account3. 5-year National Savings Certificate VIII IssueInvestments under 5-year NSC VIII issue are eligible for deduction from gross total income under section 80C. The interest is compounded annually, reinvested but paid at the time of maturity. The interest earned is taxable in your hands, and since it is reinvested, it will be eligible for section 80C deduction (except in the year of maturity). TDS is not deducted at the time of maturity. You have the option to take loan against the certificates. Minimum investment in NSC starts at Rs 1,000 and there is no limit of maximum investment. Interest rate offered: 6.8% (for January-March 2021 quarter)Maximum investment amount: No limit but tax benefit is available only up to Rs 1.5 lakh under section 80C.How to invest: One can buy NSC certificates from any post officeTenure: 5 years4. 5-year tax-saving fixed depositsTax-saving fixed deposits (FDs) of five years held either with bank or post office is another specified investment avenue under section 80C. The interest earned on these FDs is taxable in the hands of the investors. However, senior citizens can claim deduction for up to Rs 50,000 each financial year under section 80TTB.TDS will be applicable on the interest earned on FDs. Tax will be deducted if the interest earned by an individual exceeds Rs 40,000 in a financial year. For senior citizens, TDS becomes applicable when interest earned exceeds Rs 50,000.Also, senior citizens are offered slightly higher interest rate on the bank FD. But this differential is not available on a 5-year post office time deposit (POTD). Do keep in mind that you cannot take loans against these fixed deposits. If you encash this FD prematurely before the completion of five years you will have to pay a penalty and claimed 80C deductions will have to be reversed.Interest rate offered in Post Office: 6.7% (for January-March 2021 quarter).Banks: Varies from bank to bankAlso Read: Top 5 tax-saving bank FDsMaximum investment amount: Up to Rs 1.5 lakh in a given financial yearHow to invest: One can visit either a bank branch or post office. You can also do the same via internet banking.Tenure: 5 years Schemes Interest rate (In %) Maximum investment amount Tenure VPF 8.5% Up to 100% (Including EPF) of basic + DA Same as EPF PPF 7.1 Rs 1.5 lakh in FY 15 years NSC 6.8 No limit, tax benefit up to Rs 1.5 lakh 5 years 5 year Post Office time deposit 6.7 No limit, tax benefit up to Rs 1.5 lakh 5 years Bank tax-saving FD Varies from bank to bank Rs 1.5 lakh in FY 5 years Sukanya Samriddhi Account Scheme 7.6 Rs 1.5 lakh in FY 21 years Senior Citizens Savings Scheme 7.4 Rs 15 lakh, tax benefit up to Rs 1.5 lakh 5 years 5. Sukanya Samriddhi Account SchemeYou can invest in this scheme only if you have a girl child. The account can be opened any time after her birth till the time she turns 10. The account can be opened for two girl children and you cannot open two accounts for one girl. While opening the account, you will be required to submit the birth certificate of the girl child along with other documents such as proof of identity, proof of address etc. Minimum investment starts at Rs 250.Interest rate offered: 7.6% (For January-March 2021 quarter)Maximum investment amount: Rs 1. 5 lakh in a financial yearHow to invest: Account can be opened with at post office or authorised bank branchesTenure: The account matures on the completion of 21 years from the date of opening or whenever the girl child gets married, whichever is earlier, subject to certain conditions.Also Read: What is Sukanya Samriddhi Account? All you need to know6. Senior Citizens Savings SchemeSenior citizens of age 60 years and above can invest in this scheme. Retired defence employees above 50 years and retired civilian employees above 55 years of age can also invest in this scheme provided that the investment is made within 1 month of receipt of retirement benefits. Apart from its tax benefit, the scheme also offers one of the highest quarterly interest payments which can be a good source of regular income for them. Post maturity, account can be extended for three years. However, tax benefit will not be available on the extension.One can invest in the scheme either individually or jointly with the spouse. There is no limit on the number of accounts that can be opened, but it should not exceed the maximum investment limit. Non-resident Indians (NRIs) and Hindu Undivided Families (HUFs) are not allowed to invest in this scheme.Interest rate offered: 7.4% paid quarterly (For January-March 2021 quarter)Maximum investment amount: Rs 15 lakh. Tax benefit under section 80C is available up to Rs 1.5 lakh.How to invest: Investment can be made at authorised post office or bank branches.Tenure: 5 years. Post maturity, account can be extended by 3 years.Also Read: All you need to know about Senior Citizens Savings SchemePoints to note The interest rates mentioned above are those as announced for January-March 2021. The interest rate offered on small savings schemes are reviewed by the government every quarter.Banks decide the interest on the tax-saving FDs offered by them.