There’s a tax-saving opportunity readily available under the Section 80C of the Indian Income Tax Act for the current FY and we are here to keep you in the know of your best options.
If tax relief is a priority for you, look for deductions available under Section 80C of the Income Tax Act. Presently, Section 80C allows you to save up to INR 1, 50,000 on your total taxable income for the Financial Year 2018-2019. However, the tax relief is claimable only if the deductible amount is invested within the current FY in any of the tax-saving instruments available under Section 80C. Wondering which instrument will limit your tax outgo and at the same time earn tax-free income for you? Here’re your best options.
1. Equity Linked Savings Scheme (ELSS):
Equity Linked Savings Scheme (ELSS) is a mutual fund scheme providing tax exemptions up to INR 1, 50,000 under the Section 80C. Among all available options, this is probably the best bet if your risk appetite is strong. As the name suggests, ELSS is an equity-linked scheme where returns are relatively high and so is the risk factor. Here, you can get an interest rate between 15% and 18%, depending on the fund’s market performance. The lock-in period is 3 years, which is the lowest amongst all tax-saving instruments listed in Section 80C. As is the case with FD plan, there’s no upper investment limit in ELSS as well but tax exemptions can be claimed only for INR 1.5 Lakhs. Dividend and growth options are both available for suitability reasons.
2.Tax Saving Fixed Deposits:
Your search for the safest investment option under Section 80C ends with tax-saving Fixed Deposits (FDs). The tax-saving FDs offer you maximum available tax benefits under Section 80C with the guarantee of assured returns. The interest on fixed deposit varies between 5.5% and 7.75%, subject to the bank’s applicable rates and the amount invested. For instance, PNB offers 6.25% interest yearly on deposits below one crore while deposits between one crore and 10 crores attract 6.00% annual interest. Plus, you get the highest interest on FD compared to a savings account. The lock-in period is 5 years and minimum investment requirement is INR 1000.
3.Public Provident Fund:
With a 15-year lock-in period and tax rebate on investments up to INR 1, 50,000 under the Section 80C, Public Provident Fund (PPF) is an ideal long-term investment scheme. The tax saver instrument is backed by the Government of India, making it a safe bet for salaried and non-salaried individuals. Despite the lengthy lock-in period, PPF funds your urgent requirements with partial withdrawal and loan facility. The interest rate here depends on the quarterly revisions made by The Ministry of Finance, GOI. The rate for the present quarter stands at 8% PA.
4.National Pension System:
Want to maintain your lifestyle post-retirement? National Pension Scheme is the way to go. It will not only help you achieve tax deductions on investments up to INR 1, 50,000 but also earn returns between 12% and 14% to support your lifestyle when regular income is not there. You can make partial withdrawals after 15 years, subject to conditions. There’s no upper limit to the contributions made to NPS by you and your contributions and withdrawals are both tax-free.
5.Unit Linked Insurance Plans:
Before looking for FD renewal, why not consider Unit Linked Insurance Plans (ULIPs). ULIPs are a hybrid instrument, offering you the right mix of life cover, investment and tax relief. A small portion of your investment will go in the insurance component while the major chunk will be invested in the stock market. Your ULIP investments up to INR 1, 50,000 will fetch you tax relief under Section 80C, provided the insurance cover exceeds the yearly premium by 10 folds.