Want to save tax? Here are 5 investment plans for the Indian middle class

By admin | Mar 26, 2021

India’s middle class are probably the hardest working individuals in the country. They beat the uncertainty of rush hour traffic and report to their workplace come rain or shine. But come tax season, many of them are left clean bold at the sight of the tax they owe the government. As per India’s income tax slabs, any Indian citizen below the age of 60 years, earning an annual income of more than Rs 2.5 lakh will have to pay income tax to the Government of India. If you’re a working, middle-class Indian citizen who falls under this tax bracket then unfortunately you will be faced with the unavoidable task of paying taxes. However, there are ways through which you can reduce your tax amount and save more money.

Here are 5 investment plans that can help middle-class Indians save on income tax:


Public Provident Fund


A Public Provident Fund or PPF is a popular investment option offered by the Government of India. The minimum investment amount for a PPF is Rs 500 per year and the maximum amount is Rs 1.5 lakh.

PPF investments are covered under Section 80C of the Income Tax Act, 1961. So an individual can claim a tax deduction of up to Rs 1.5 lakh per year, which can help them save up to Rs 46,800 in taxes. PPF accounts offer assured annual interest and are backed by sovereign guarantees. However, if you’re looking to invest in a PPF then the lock-in period will be Rs 15 years. Premature withdrawals can be made under special conditions.

To open a PPF account you can head to your local bank or post office. A PPF account can also be opened online if you have availed the net banking service from your registered bank. The following documents will be required to open a PPF account offline:

  • Identity proof (Voter ID/PAN Card/ Aadhar Card)

  • Proof of residence

  • Passport size photographs

  • Pay-in-slip (available at the bank branch/post office)

  • Nomination form


RBI Bonds


RBI Bonds are savings bonds that are issued by the Reserve Bank of India (RBI). Currently, RBI bonds are available for a tenor of 7 years at 7.75% interest rates. RBI bonds can only be held in Demat form. Every investor will be given a certificate of holding as proof of investment.

You can apply for RBI bonds through nationalized banks and through major private sector banks such as ICICI Bank, HDFC Bank, and Axis Bank. Since the Reserve Bank of India is issuing these bonds, they are considered a safe investment option. However, these bonds do have some disadvantages. The interest rate payable on the bonds is fully taxable and tax is again deducted at source on the interest payout. But if you want a fixed and risk-free return, RBI bonds are the right investment plan for you.


National Pension Schemes


The National Pension System (NPS) is a saving cum pension scheme initiated by the Central Government. Investors can claim an additional tax deduction of Rs 50,000 a year by voluntarily contributing to their NPS account. For NPS Tier I accounts, the minimum contribution is now reduced to Rs 1,000 per year. The good thing about NPS is that it invests across equity, bonds, deposits, among other things. Investors can choose the amount of equity exposure they would like to have as per their risk profile.

Besides being a good investment plan to save taxes, NPS is also a reliable scheme for anyone who wants to start investing in their retirement. You can open an NPS account by going to your bank and submitting your subscriber form along with the KYC papers. You can also open an NPS account online by signing up on eNPS

Tax Saver Fixed Deposits

Tax saver fixed deposit is a type of deposit scheme in which you can get tax deduction under section 80C of the Indian Income Tax Act, 1961. An investor can invest up to Rs 1.5 lakh in a tax saver FD and claim a deduction on the investment amount. The lock-in period for a tax saver deposit FD is 5 years and they yield an interest rate of 5.5% - 7.75%. Tax saver FDs are a great investment option if you want to save on taxes and invest in a short term goal. However, one should keep in mind that the interest earned from these FDs is taxable.

You can open a tax saved FD from your registered bank or from the local post office. You will need to submit proof of address, identity proof, along with the application form at the time of opening a tax saver FD.


ELSS Funds


Equity Linked Savings Scheme or ELSS fund is the only type of mutual fund that is eligible for tax deductions under Sector 80C of the Indian Income Tax Act of 1961. With an ELSS you can claim a tax rebate of up to Rs 1.5 lakh and save up to Rs 46,800 a year in taxes. The lock-in period for ELSS is 3 years, the shortest among all the other Section 80C investments. You can invest in ELSS funds with a monthly Systematic Investment Plan (SIP) or by investing a lumpsum amount.

To invest in ELSS funds you will first need to determine which tax slab is applicable to you. To start investing, register on the online investment services account of your registered bank. You can opt to make a lumpsum investment or start a monthly SIP. You can invest a minimum of Rs 500 in ELSS funds. There is no maximum limit but you can avail tax rebate of up to Rs 1.5 lakh.

Investing in the right option is crucial for wealth building. Not only do the above investment plans ensure that your wealth grows every year, but they also help you save taxes on your income. Study the investment market thoroughly, assess your risk profile, and choose an investment option that matches your requirements.



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