While many popular investment instruments such as Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS) among others require long term commitments, several provide quick liquidity, lower risk and efficient Section 80C or other related deductions, thus making them ideal for those aspiring to prioritise financial flexibility.
Keeping the same factors in mind below are five tax saving options that investors can avail without decadal or very long lock in periods and ensure that they are able to save money smartly.
5-year fixed deposits with tax benefit
Several banking institutions provide 5 year tax saving fixed deposits (FDs) under Section 80C. Given these fixed deposits do have a five year lock in period, still they also provide premature liquidity in emergencies through a personal loan or overdraft, unlike PPF or NPS. Do keep in mind, the interest earned on such deposits is taxable, but the principal invested qualifies for deduction up to ₹1.5 lakh.
Tax deduction through health insurance (Section 80D)
Health insurance continues to be a reputable tax saving recommendation by banking institutions and financial advisors. Premiums of up to ₹25,000 ( ₹50,000 in case of senior citizens) are deductible under Section 80D. It is also important to note that there is no lock in and deductions can be claimed every year upon renewal, making it one of the most lucrative and flexible options.
Employee Provident Fund contributions
For salaried individuals, all contributions made to the Employee Provident Fund (EPF) automatically qualify for Section 80C deductions. Though EPF has a retirement oriented vision and structure, still partial withdrawals are permitted for marriage, education, home ownership and medical emergencies such as serious surgeries and procedures. Thus providing partial liquidity without breaking the investment.
Home loan principal and interest
The repayment of home loan principal amount qualifies under Section 80C. The interest up to ₹2 lakhs is deductible under Section 24(b). There’s no fixed lock in and deductions can be claimed yearly throughout the tenure of the home loan. It remains one of the most utilised tax saving strategies for home owners.
National Pension System – Tier I and Tier II
National Pension System (NPS) provides deductions under Section 80CCD(1B) of up to ₹50,000 over and above the deduction provided under Section 80C. Though tier I is long term, tier II accounts offer flexible withdrawals. Do keep in mind that tier II is tax exempt only for government employees. Withdrawal of partial amounts are also permitted after three years under specific terms and conditions.
Disclaimer: This article is for informational purposes only and should not be considered financial or tax advice. Please consult a qualified tax advisor or financial planner before making any investment or tax-saving decisions.
