Are You Losing Interest with Tax-saving Investments?
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Are You Losing Interest with Tax-saving Investments?

  • Highlights

  • 10% LTCG on equities is back

  • Lower yield with tax-free investments

  • Longer lock-in period with tax-free investments

  • Higher returns with investments with taxable interest

Tax-saving investments help in evading taxes, so you can put your saved income to use in a better way. But, are tax-saving instruments always profitable? Perhaps not.

We must evaluate the benefits of tax-saving investments, and weigh them against the benefits of higher returns. Let’s look at tax-saving and tax-free investments, and analyse how to proceed with investments.

Investments with Tax-Free Returns

- Sukanya Samriddhi Yojana (SSY) offers the highest tax-free return of 8.1%. But its greatest disadvantage is its lock-in period of 21 years.
- Savings Account, where interest amount is tax-free up to the limit of Rs. 10,000. Income above Rs. 10,000 is added to taxable income, and the interest rate is 3.5%
- PPF with 7.8% tax free returns, has a lock-in period of 15 years.

Investments with taxable Interest Amount

The interest amount of these investments gets added to the income, and is taxed.

- National Savings Certificate (NSC)
- Senior Citizens' Savings Scheme (SCSS)
- Company Fixed deposits

Additional Read: How to maximize your returns with Bajaj Finance Fixed Deposits

Shares, and mutual funds have short-term capital gains. The Union Budget 2018 reintroduced 10% LTCG on equities for amounts above Rs. 1 lakh.

The returns on fixed deposits has TDS for earnings over and above Rs. 5000.

The interest rates of company fixed deposits are usually higher, though the rates are subject to change.

Let’s compare the investments between a tax-free savings account, and a company fixed deposit, where interest is taxable.

Saving account vs. Fixed deposits

Why should you choose Bajaj Finance Fixed Deposits?

Consider an individual, who falls under the income tax slab of 30%. Considering the industry's average interest rate for FDs, the post-tax returns of FDs for income tax slab of 30% is 5.25% which is much more than that of the savings account.

Why should you choose Bajaj Finance Fixed Deposits?

The investments that provide Rs. 1.5 lakh deduction u/s 80C - NSC, NPS, PPF, EPF, tax-saving FDs, SSY, SCSS, help to save tax. However, they are characterised by longer lock-in period, and lower yield.

On the other hand, investments like FDs that are taxed, give higher post-tax returns. Through financial prudence, you can trade-off tax savings with higher interest income, and yet stand to gain.

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