Define Tax Sheltered Savings Scheme

Tax Sheltered Savings Scheme

Tax sheltered savings schemes are of great importance to the investors in the tax-paying category. The tax sheltered savings schemes offer tax relief to those who participate in their schemes according to the income tax laws. The important tax sheltered savings schemes are

Public Provident Fund Scheme

National Savings Scheme

National Savings Certificate VIII series

Public Provident Fund Scheme (PPF)

PPF earns an interest rate of 12 percent per year, which is exempted from the income tax under sec 88. The individuals and Hindu undivided families can participate in this scheme. The maximum limit per annum for the deposit is ` 60,000. The interest is accumulated in the deposit. It provides early withdrawal facilities from 7(1 year and every year thereafter, the account holder has an option to withdraw 50 per cent of the balance to his credit 4 years ago or 1 year ago whichever is lower. The facility makes PPF a self-sustaining account from 71h year onwards.

National Savings Scheme (NSS)

This scheme helps in deferring the tax payment. Individuals and 1-IUF are eligible to open NSS account in the designated post office. The NSS-87 gives 100 per cent income tax rebate but the interest as well as the capital are fully taxable if withdrawn during their lifetime. Investments in the NSS scheme, with a lock in period of 4 years qualify for a rebate of 20 per cent under Section 88 of the Income Tax Act, subject to a maximum of ` 12,000. The investment also earns an interest rate of 11 per cent pr year covered by Sec 80L. Compared to other tax savings’ instruments the return offered by this scheme is lower.

On the liquidity aspect, withdrawal is permitted at any time after four years from the end of the financial year in which the account is opened. The entire amount can be withdrawn. The account can be closed on the expiry of 4 years. There is no fixed tenure for investment. One can also keep the account alive and earn interest at 11 percent per annum.

Aax saving instrumenanytimeithwafter 4 yearhnly interesting feature to the prospective investor. The tax deduction at source at the rate of 20 percent on the entire amount withdrawn has proved too costly to the investors.

National Savings Certificate (NSC)

This scheme is offered by the post office. These certificates come in the denominations of ` 500, 1,000, 5,000 and 10,000. The contribution and the interest for the first 5 years are covered by Sec 88. The interest is cumulative at the rate of 12% per annum and payable biannually is covered by Sec 80L. No withdrawals are permitted. There is no deduction at maturity.