How to best take advantage of tax saving options under the old tax regime

ELSS funds score handsomely on many parameters. They have the potential to give high returns, there is transparency about where they invest and the costs are very low. Additionally, investors get a very short lock-in period and the flexibility to stop if they wish to. However, ELSS funds can be risky due to stock market volatility, which suits long-term investors who take the SIP route. But the SIP window has closed for taxpayers who have to show proof of Sec 80C tax-saving investments in a few days. So, our advice is not to put a large sum into ELSS funds at one go but stagger the purchases over 2-3 tranches before the March 31 deadline.

Returns: 16.5%
ET Wealth rating: 5 stars

The entire 60% of the corpus withdrawn at the time of retirement is tax free. Younger investors can now allocate up to 75% to equities. Older investors can remain invested in the scheme even after they retire till the age of 70 and stagger their withdrawals. But investors should not expect very high returns from NPS in the short to medium term. Bond yields are beginning to rise and could shoot up if there is a rate hike. In such a situation, NPS investments may not deliver very attractive returns. But its tax benefits are unmatched. NPS can help save tax under three sections- contributions of up to Rs 1.5 lakh can be claimed as a deduction under Sec 80C; there is an additional deduction of up to Rs 50,000 under Sec 80CCD(1b); if the employer puts up to 10% of the basic salary of the individual in NPS, that amount is not taxable.

Returns: 8-11%
ET Wealth rating: 5 stars

Ulips are an effective rebalancing tool and cater to many financial needs simultaneously. They score over ELSS funds and are also more flexible because investors can switch from equity to debt (or vice versa) depending on their reading of the market. What’s more, there are no tax implications on the gains made from such switching because income from Ulips is tax exempt. A Ulip, however, may not be able to give you the life cover you actually need. Also, it is a long-term investment and you must continue with the policy for the full term or risk losing liquidity. Watch out for wealth managers trying to mis-sell Ulips to you, especially around the tax saving deadline.

Returns: 9-14.5%
ET Wealth rating: 4 stars

Though PPF scores high on safety, flexibility and taxability, it earns a low interest rate at 7.1%. While bond yields are set to rise, this may not lead to higher rates for small savings schemes. Experts point out that the interest offered on small savings schemes is artificially high and should have a difference of at least 30-50 basis points. The tax-free nature of the PPF makes it better than fixed deposits. The tenure of the scheme is 15 years from the first investment which on maturity can be extended in blocks of five years.

Interest rate: 7.4% (Oct-Dec 2021)
ET Wealth rating: 3 stars

SCSS is the best investment option for those above 60, especially after the additional tax exemption for interest up to Rs 50,000. The scheme beats PPF in terms of interest. Even 5-year tax-saving FDs, which fetch higher returns than regular FDs can't rival SCSS. However, the eligibility is restricted to senior citizens. Further, the overall investment limit is Rs 15 lakh per individual. In some cases, where the investor has opted for voluntary retirement and has not taken up another job, the minimum age is relaxed to 58 years. There is also no age bar for defence personnel.

Interest rate: 7.1% (for Oct-Dec 2021)
ET Wealth rating: 4 stars

For taxpayers with a daughter aged below 10 years, the SSY is advisable. It enjoys the highest interest rate among all small savings schemes. The interest earned is tax free and investments are capped at Rs 1.5 lakh annually. Accounts can be opened in any post office or designated banks, in the name of the child and with a minimum investment of Rs 1,000. The maturity proceeds have to be used for her education and marriage. The interest rate is linked to the government bond yield and is subject to change every quarter. However, it has remained unchanged for more than two years despite a consistent fall in bond yields.

Interest rate: 7.6% (Oct-Dec 2021)
ET Wealth rating: 3 stars

Pension plans from insurance companies are suffer from a lack of tax benefits and are not eligible for additional deduction of Rs 50,000 that NPS gets. The insurance industry has been lobbying with the Finance Ministry for several years but to no avail. In case of a pension plan, the investor is tied to the company till the plan matures. Taxability of the annuity pension is a problem that plagues both pension plans and the NPS.

Returns: 6-9%
ET Wealth rating: 3 stars

NSCs now offer rates that are only marginally higher than those offered by banks on their tax-saving FDs. But the big benefit is that NSCs are government backed. The returns are also assured and there’s a short 5-year lock-in, unlike in the PPF. Also, you don't need to make a multi-year commitment as in case of insurance plans. Interest earned on the NSC is also eligible for deduction under Section 80C in subsequent years.

Interest rate: 6.8% (Oct-Dec 2021)
ET Wealth rating: 2 stars

Interest rates on tax saving FDs are low but tax on interest cuts them even further. Since interest is fully taxable, the post tax rate for investors in the 30% tax bracket is less than 5%. That is roughly what endowment insurance policies deliver. Tax-saving FDs suit those who have delayed their tax planning and are hunting last-minute options to invest in. Even if his bank has closed for the day or the investor has to go out of town, he can easily open this FD via Net banking.

Interest rate: 5.75%-6.3%
ET Wealth rating: 2 stars