If you want to save tax without taking any market risk, then post office schemes may be a good option for you. Post office schemes are much secure investment options than those available in the market today. You will not get high returns compared to the market linked investment products, but the returns are assured which are subject to change as per government policies.
Post office schemes, which provide tax-saving benefit, should have an investment horizon of 5 years.
Term deposit (TD)
A term deposit account is opened by an individual. The account can be transferred from one post office to another. There is no limit to open a term deposit account. A minor who is above the age of 10 years can operate the account. The investment made for 5-year term deposit will be qualified for deductions under 80C. There is again no limit for deposit money in the TD account. Interest is payable annually, but calculated quarterly. The interest rate on 5-year TD for 3rd & 4th quarter of FY 2016-17 is 7.8% per annum.
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National Savings Certificate (NSC)
The scheme is specially designed for government employees, businessmen, and the salaried person whose salary is taxable. There is no maximum limit for investment. However, you will get deduction up to Rs.1.5 lakh only. The certificate issued for NSC can be used as security for availing a loan. If you buy NSC every month for the next five years and on each maturity re-invest the same, on retirement it will provide you monthly pension income. The interest rates are compounded semi-annually but accredited annually. The interest rate for 3rd & 4th quarter of FY 2016-17 for 5-year NSC is 8% per annum.
Public Provident Fund (PPF)
It is one the most preferred tax saving options, which gives the exempt- exempt – exempt benefit. The contribution, interest and the maturity amount are tax-free. Withdrawals are allowed from the 7th year from the date of opening the account. However, the loan can be taken from the 3rd financial year. The maturity period is 15 years, which can be extended further for 5 years. It is one of the best instruments for retirement planning savings. The interest rate is compounded annually. The interest rate for 3rd & 4th quarter of FY 2016-17 is 8% per annum.
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Senior Citizen Savings Scheme (SCSS)
An individual who is above the of 60 years can open the account. Some who is on superannuation or on VRS can open the account at the age of 55 years. Maturity period is 5 years. A joint account can be open with a spouse in any number of capacity. Investments made against SCSS can be claimed under section 80C. The interest is payable quarterly. The interest rate on 5-yr SCSS for 3rd & 4th quarter of FY 2016-17 is 8.5% per annum.