Section 80C of the Income Tax Act has a long list of investments you can make to save on taxes, but unfortunately, recurring deposits (RD) isn’t one of them. However, RDs are a great investment to make and have way too benefits to pass up! We’ve listed out everything you need to know about recurring deposits and how they can ultimately get you to save on taxes.
But first, if you’re looking to make investments to help you save on tax, here’s a list of investments we think are great!
|Tax Saving Investments|
|Income Tax Act||Exemption Amount||Investment Scheme||Average return||Minimum lock-in period|
|Section 80C||Rs.1.5 lakh||ELSS (Equity Linked Savings Scheme)||15-18%||3 years|
|PPF (Public Provident Fund)||8%||15 years|
|5-year Fixed Deposit||5-8%||5 years|
|National Savings Certificate||7-8%||5 years|
|Unit linked insurance plan||Subjective||Subjective|
|Life Insurance Premium||Subjective||Subjective|
|Section 80 TTA||Rs.10,000||Savings Account Interest||4-5%||NA|
|Section 80 CCD||Rs.50,000||National Pension Scheme||8-10%||Till retirement|
These investments are lucrative and also have low to no risk. Only ELSS and ULIPs carry some risk. Now, making investments is not as easy as it seems for many people. When you’re living salary to salary, or have an income that’s just not enough to invest in an FD, a recurring deposit can help build up your savings fund.
Recurring deposits are a popular investment because they help meet both short-term and long-term goals. Though there are plenty of benefits of an RD, here are the top ones:
Ultimately, once you build up enough capital, you can reinvest the maturity amount in a scheme that helps you save tax such as the 5-year fixed deposit. For example, if you invest Rs.5,000 every month in a 2-year RD at an interest rate of 7.5% p.a.
You will save an amount of Rs. 1,20,000.
You will earn interest of Rs. 9,840.
So, you will have Rs.1,29,840 to invest in something bigger. Thus, while it’s important to save on tax, you can also put aside some amount in an RD to grow your capital.