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Best Short Term Investment Plans for Income Tax Benefits

Know About Best Short Term Tax Saving Investments in Detail

#Income-Tax
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Each year, you get reminders from tax professionals and employers, implying that the tax season has begun. It is the time when you collate information about all the long term and short term investment plans that you have put your money in. Before checking the best short term investment plans available in the market, let’s first understand what are short term investment plans.

What are Short Term Investment Plans?

Short term investment plans are liquid investments wherein investors can park their savings for short durations and avail returns on the same. With short term investments, you can avail good returns over a specified period of time and tax benefits as well. Let us check the best short term investment plans which provides tax benefits as well. Check the different short term investments available.

Best Short Term Investment Plans with Tax Benefits

Here are some of the best short term investments which will not only help you get good returns but will provide tax benefits as well:

  • Equity Linked Saving Scheme (ELSS)
  • Rajiv Gandhi Equity Savings Scheme (RGESS)
  • Debt-Based Mutual Funds
  • Unit Linked Investment Plan (ULIP)
  • National Saving Certificate (NSC)
  • Senior Citizen Saving Scheme (SCSS)
  • Tax Saver Fixed Deposits
  • Fixed Maturity Plans
     

Short Term Investment Plans

Check the best tax saving short term investments in detail below:

1.Equity Linked Saving Scheme (ELSS)

ELSS are diversified mutual fund investment schemes that provide significant tax-saving benefits. They are also called tax-saving funds. What makes ELSS one of the most advantageous short term investment plans is that these plans invest primarily in equities. ELSS has a lock-in period of 3 years, which is the least of all the tax saving investment plans. 

Under these short term investment plans, you get income tax benefits along with capital appreciation. What makes these short term investment plans popular amongst investors is the absence of entry or exit load. Also, the capital gains from these short term investment plans are tax-free.

2. Rajiv Gandhi Equity Savings Scheme (RGESS)

As one of the top performing short term investment plans in India, RGESS began with the aim to encourage small investors with little or no experience to invest in domestic capital markets. Initially, the income ceiling related to this scheme was Rs. 10 Lakh in 2012-2013, which was raised to Rs. 12 Lakh in 2013-14 [2].

Another feature that differentiates this scheme from other short term investments is the tax benefits under Section 80CCG. While investing in these tax saving short term investments, you qualify for a 50% deduction of the amount you invest in this scheme from your taxable income, up to Rs. 50,000 maximum per financial year.

Also Read: Best Long Term Investment Plans for Tax Benefits

Short Term Investment Plans

2. Rajiv Gandhi Equity Savings Scheme (RGESS)

As one of the top performing short term investment plans in India, RGESS began with the aim to encourage small investors with little or no experience to invest in domestic capital markets. Initially, the income ceiling related to this scheme was Rs. 10 Lakh in 2012-2013, which was raised to Rs. 12 Lakh in 2013-14 [2].

Another feature that differentiates this scheme from other short term investments is the tax benefits under Section 80CCG. While investing in these tax saving short term investments, you qualify for a 50% deduction of the amount you invest in this scheme from your taxable income, up to Rs. 50,000 maximum per financial year.

Also Read: Best Long Term Investment Plans for Tax Benefits
 

Short Term Investment Plans

3. Debt-Based Mutual Funds

Debt-based mutual funds are short term investment plans through which you can invest in instruments that generate fixed interest, such as corporate bonds, and government securities. One reason why people prefer investing in these short term investments is to earn fixed interest along with the benefits of capital appreciation. 

Debt funds are also called fixed-income securities or short term investment plans, as you get the interest up to the rate promised or pre-decided by the issuers of these funds. 

Debt fund returns mostly fall in the range predicted by the issuers, which makes them the safe short term investments for risk-averse investors. Capital gains from debt funds are taxable based on the holding period, which is why they do not exactly fall into tax saving investment plans. 

4. Unit Linked Investment Plan (ULIP)

ULIPs are unique short term investment plans that give dual benefits of life insurance and investment altogether. They also provide a flexible approach to balance your investments between equity and debt components as per market conditions. However, the tax benefits of these short term investment plans come with certain restrictions. 

ULIPs, being a tax saving investment plan, offer benefits under Section 80C [3], provided you continue paying the premium for at least two years. Discontinuing to pay the premium of these short term investment plans will not allow you to get the tax benefits. 

Also Read: How to Save Tax with ULIPs

5. National Saving Certificate (NSC)

NSC is a tax saving short term investment plan backed by the Government of India. More particularly, it is a savings bond meant for small to mid-income investors that also offers tax benefits. You can invest in these short term investment plans via the nearest post office in your name or as a joint account with another adult individual. 

There are two fixed maturity periods of NSC – five and ten years. It means it will work as short term investments if you invest in it for five years. Your investment in this plan can help you earn a tax break of up to Rs. 1,50,000 under Section 80C. Currently, you get the fixed interest at the rate of eight percent per annum on investing in these short term investment plans.

6. Senior Citizen Saving Scheme (SCSS)

As the name suggests, SCSS is meant for senior citizens in India. It is an apt choice of short term investment plans for people above the age of 60 to make money. They can invest in this tax saving investment plan through banks and post offices. 

Under these short term investment plans, they can also claim a tax deduction of up to Rs. 1,50,000 under Section 80C. The maturity period of SCSS is five years, which makes it one of the best short term investment plans suitable for the elderly. 

7. Tax Saver Fixed Deposits

Tax Saver Fixed Deposits is a tax saving investment plan that comes with tax benefits under Section 80C of the Income Tax Act. As an investor, you can get a deduction of Rs. 1,50,000 maximally by investing in these short term investment plans that have a lock-in period of five years. 

However, you should know that the interest you will earn on these short term investments is taxable. As compared to a savings account, the short term investment plans have the potential to yield higher returns. 

8. Fixed Maturity Plans (FMPs)

FMPs are close-ended debt funds that have a fixed maturity period associated with them, hence the name. They are one of the short term investment plans as their tenure varies from 30 days to 5 years. As a tax saving investment plan, they are quite different from fixed deposits. When you invest in these short term investment plans for a tenure longer than a year, you can benefit from indexation to influence your tax liability against the inflation rates. 

Along with being one of the short term investment plans, FMPs also work as an asset allocation tool for investors. 

How to Choose Between Best Short Term Investments? 

There are several things that you should consider when you decide to invest in one or more short term investment plans. A tax saving investment plan that is ideal for your peers may not be suitable for your needs. Therefore, you must think about various aspects while selecting short term investment plans, such as:

  • Your investment goals
  • The upper limit of the amount you can invest in short term investment plans
  • Your risk appetite 
  • Your financial needs 

Whether you want to invest in safe, tax saving investment plans or riskier long term plans, the choice is yours. Make sure you understand the risk-return playoff for various short term investment plans before making the final decisions. 

Sources:

[1] https://www.incometaxindia.gov.in/Pages/tools/deduction-under-section-80d.aspx

[2] https://www1.nseindia.com/invest/content/investor_RGESS.htm

[3] https://www.incometaxindia.gov.in/Pages/tools/deduction-under-section-80c.aspx

ARN:- May/Bg/01

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