The Government of India has periodically introduced various schemes aimed at social security and savings opportunities to achieve financial goals and improve standard of living. Let’s take a quick look at some of these schemes that every Indian taxpayer should be familiar with, enabling them to make informed decisions about savings while easing the impact of taxes.
1. Public Provident Fund (PPF)
The PPF is a government-backed savings scheme offering long-term financial stability. Individuals can contribute ₹500 to ₹1,50,000 annually, with a 15-year tenure, extendable, and limited premature withdrawals allowed. Currently it offers an interest rate of 7.1% per annum. Investments qualify for Section 80C deductions up to ₹1,50,000, and both interest and maturity proceeds are tax-free.
2. National Pension System (NPS)
The NPS is a government-supported, market-linked stable retirement scheme ensuring financial security. It offers Tier-I for long-term savings with tax benefits and Tier-II for catering flexibility needs. Employees can claim tax deductions up to ₹1,50,000 under sections 80C & 80CCD(1), plus an additional ₹50,000 u/s 80CCD(1B). Employer contributions qualify for deductions up to 10%-14% of salary u/s 80CCD(2). It is also open to all the Indian citizens aged 18-70 years with a tax deductions up to 20% of Gross Total Income u/s 80CCD(1).
3. Unified Pension Scheme (UPS)
The UPS is set to begin on 1st April 2025, aims to enhance post-retirement benefits for Central Government employees, with State Governments also eligible to adopt it, potentially covering 90 lakh employees who are currently under NPS. It allows a one-way switch from NPS to UPS and guarantees a secure pension. With the government contribution raised from 14% to 18.5% of salary, Dearness Allowance adjusted for inflation, and tax benefits similar to NPS, the UPS offers a financially secure and tax-efficient retirement option.
4. Sukanya Samriddhi Yojana (SSY)
The SSY launched by the Government of India under the Beti Bachao Beti Padhao initiative, helps parents secure their daughters’ financial future for education and marriage while enjoying tax benefits. With deposits ranging from ₹250 to ₹1,50,000 per year, the scheme allows accounts to be opened before the girl turns 10 and matures 21 years after the account is opened. With an interest rate of 8.2% per annum, investments are eligible for Section 80C deduction, and both interest and maturity proceeds are tax-free.
5. National Savings Certificate (NSC)
The NSC offers a risk-free way to grow savings with guaranteed returns and tax benefits, ideal for those seeking a safe savings option. It requires a minimum investment of ₹1,000, with no upper limit and with a tenure of 5 years. Investments are eligible for tax deduction up to ₹1,50,000 under section 80C along with the interest accrued which automatically gets re-invested.
6. Equity Linked Savings Scheme (ELSS)
ELSS is the only mutual fund scheme eligible for tax benefits, offering market-linked returns with the potential to outpace inflation. One can begin with as little as ₹500 via SIP with a 3-year lock-in period, the shortest among tax-saving options. Investments qualify for Section 80C deductions up to ₹1,50,000
7. NPS Vatsalya Scheme
The NPS Vatsalya is a government-supported pension scheme ensuring long-term financial security for minors. It allows parents to contribute on behalf of their children, fostering early financial planning while offering a tax deduction of up to ₹50,000 under Section 80CCD(1B) from FY 2025-26.
8. Employee Provident Fund (EPF)
EPF is a mandatory retirement scheme for salaried employees in organizations with 20+ employees, ensuring structured savings through mutual contributions. EPF currently offers an interest rate of 8.25% per annum. While full withdrawals are restricted until retirement, partial withdrawals are allowed under conditions. Employer contributions are tax-exempt up to 12% of salary, while employee contributions qualify for Section 80C deductions, along with certain tax benefits on interest and maturity proceeds.
Conclusion
By taking advantage of the tax benefits offered by these schemes, Indians can optimize their financial resources and secure their future. With a vigilant approach and consultations with investment advisors, taxpayers can maximize the benefits of these schemes while also contributing to nation-building
Contributors:
CA N Srilatha Bhat – LinkedIn
Kuldeep Sarma – LinkedIn
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