As the end of financial year draws
near, many of my friends who were least bothered about tax saving investments
throughout the year, have started hunting down options to park their surplus
funds and consequently save up on taxes. Being the Good Samaritan, I chalked
out some of the most advisable alternatives available under section 80C to save
tax. These options help in not only saving taxes, but also let your money grow.
1. Equity Linked Saving Scheme
(ELSS):
ELSS falls under the category of
E-E-E i.e.
- The amount invested in ELSS Scheme is EXEMPT,
- The amount accumulated in the ELSS Scheme is EXEMPT, and
- The amount received at the time of maturity is also EXEMPT.
At no point of time a person is
required to pay taxes on such investments. ELSS is an attractive tax saving
option offered by the mutual fund houses. The amount invested in ELSS by you is
used by mutual funds to invest in equity shares market. Not only is the return
on investments high, but the income generated is tax free and the investor is
also free to decide the tenure and amount of investment.
ELSS carries a compulsory lock-in
period of 3 years, the least of all tax saving options. Investors are free to
exit the funds after the initial lock-in period or they can continue investing
if they find the investment beneficial to them. Similar to a mutual fund
advertisement, ELSS is subject to market risks and it is essential that you
invest in the right fund.
2. Public Provident Fund (PPF):
PPF is one of the most preferred
choices for investments under section 80C, since it carries zero or nominal
risk i.e. there is full capital safety plus it also provides decent returns if
not very attractive. The prevailing interest rate on PPF is 8.70%.
PPF Scheme also falls under the EEE
category of investment. The minimum amount of investment under PPF is RS.500/-
whereas the maximum amount that can be invested is Rs. 1,50,000. It carries a
lock in period of 15 years which can be further extended in blocks of 5 years.
Investors can avail loan facility
against PPF deposits from the 3rd financial year up to the 6th financial
year. The investor can also make one withdrawal every year, beginning
from the 7th financial year, of an amount that does not exceed
50% of the PPF account balance:
a. At the end of the fourth year
immediately preceding the year of withdrawal, or
b. At the end of the preceding year,
whichever is lower.
3. Tax Free Infra Bonds:
Infrastructure bonds are recommended
for people who fall under the higher tax bracket. They offer attractive returns
as compared to investments made in Bank FDs. These bonds carry a coupon rate of
approximately 8.50% to 9 % with tenure ranging from 10-20 years. They do not
carry any lock-in period of investment.
4. Senior Citizen Saving Scheme
(SCSS):
SCSS is considered to be the best
investment option for a senior citizen as the return offered in SCSS is 9.20%.
The advantage of investing in a SCSS is that the investor receives interest on
a quarterly basis, thereby allowing senior citizens to overcome their financial
crunches. It also offers liquidity to senior citizens in the form of premature
withdrawals. However the interest earned in SCSS is taxable.
5. Insurance Plans:
Many investors misinterpret
insurance to be an investment option rather than an insurance scheme. They
invest their surplus funds in insurance scheme in order to avail the benefit of
insurance as well as investment. But at the end of the day, the return from an
insurance policy is merely 5% to 6% Investors should understand that both
investment and insurance are absolutely necessary but the two should never
be clubbed together.
The most suitable and pure form of
insurance is the term plan, wherein the investor covers up his crisis by
choosing a suitable insurance policy and paying a small amount as his premium.
The amount thus saved by him by not investing in a traditional plan can be
invested by him in any of the above mentioned options in order to gain better
return on his investments.
Though section 80C gives multiple
options, I have personally chosen only the above 5 for investing so as to not
only save tax, but to also earn a better rate of return while making flexible
investments. One should note that for tax purposes, the maximum benefit that
can be claimed by investing in the above is Rs. 1,50,000.
- See more at:
http://taxguru.in/income-tax/top-5-smart-tax-saving-options.html#sthash.GbyPCzik.dpuf
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