Choosing the right investment is vital to reduce tax liability. Read on to know more about short-term investments that you can choose to get tax benefits.
Every year, you may get reminders from the employers and the tax professionals about the tax payments. It is the time when you gather information about the various short-term investment options to reduce your tax liability. Before you invest in any short-term investment plan, you must understand what it is.
What are the short-term investment plans?
As the name suggests, short-term investment plans are liquid investments where investors can park their savings for a shorter duration and get valuable returns on the same. Typically, such investment plans have a fixed tenure and are an ideal investment for tax saving purposes.
If you are looking for the best short-term investment plan that provides tax benefits, consider investing in any of the following schemes:
Unit Linked Investment Plans are an excellent short-term investment scheme that gives you the dual benefits of insurance protection and investment under a single roof. A part of the premium you pay for ULIP is invested in the money market based on your risk appetite. Also, the premium is eligible for tax benefits under Section 80C of the Income Tax Act. You can avail of the tax benefit if you stay invested in the scheme for two years continuously from the time of policy purchase.
NSC or National Saving Certificate is another popular short-investment plan that is backed by the Government of India. It is an ideal investment plan for people with small to mid-income looking for a risk-free investment opportunity while getting tax benefits. You can invest in NSC through the post-office, and it usually comes with two fixed maturity terms – five years and ten years.
The investments in NSC are subject to tax benefit under Section 80C to a maximum limit of Rs. 1,50,000 in a financial year.
Tax Saver Fixed Deposits
The investments in tax-saving fixed deposit schemes are eligible for tax benefit under Section 80C of the IT Act. As an investor, you can get a deduction up to Rs. 1,50,000 in a year by investing in these short-term plans that have a lock-in period of five years.
However, you must know that the interest you earn from these investments is considered an income, and it is taxed as per the income tax bracket you fall. The tax-saving fixed deposits provide better returns than the bank savings account, and it is an ideal investment option for all risk-averse investors.
The Senior Citizen Saving Scheme is a short-term investment plan specially meant for people aged over 60 years. You can invest in SCSS through banks and post offices. The SCSS has a fixed maturity period of five years, making an ideal choice of investment for older people.
The investments in SCSS are eligible for tax deduction under Section 80C up to a maximum limit of Rs. 1,50,000 per year.
Another popular short-term investment scheme backed by the Government of India, Rajiv Gandhi Equity Savings Scheme, was launched to encourage small investors to invest in the domestic capital market. Initially, the scheme was only limited to people with an income limit up to Rs. 10 lakhs per annum, but now the income ceiling is extended to Rs. 12 lakhs.
One of the significant features that makes it a popular investment choice among the investors is the tax benefit it offers under Section 80CCG. When you invest in RGESS, you can get up to 50% tax benefit on the investment amount to a maximum limit of Rs. 50,000 in a financial year.
Thus, there are several short-investment plans for you to choose from for reducing your tax liability. Ensure that you read the terms and conditions of the schemes carefully and select the one that best suits your investment goals.