Most of us are not aware about the tax saving scheme people are not aware what all options are available where investment can be done. This article will let you know the options available for an individual where they can invest & also save their taxes.

EQUITY LINKED SAVING SCHEME  (E.L.S.S)

  • E.L.S.S are notified Tax Saving Schemes from Mutual Funds.
  • They carry lock in of 3 years & is eligible for 80 C benefits.
  • The multi cap E.L.S.S can be a good choice for investor portfolio.
  • E.L.S.S returns depends on stock market performance, As it consists of all equity investments, they carry risk to capital one should have high risk appetite while considering for portfolio.
  • If investment done through SIP, then each installment need to complete 3 year lock in.

EMPLOYEES PROVIDENT FUND (E.P.F)

  • For a salaried person, every month 12% of (basic pay + DA) is deducted towards E.P.F, which can be withdrawn as lump sum at retirement.
  • E.P.F gives high fixed return with tax free status, a Part of E.P.F is invested in the stock market thus give higher return than many fixed return instruments.
  • E.P.F forces you to save before you spend.
  • Voluntary PF can also be deposited by employee which creates a good corpus at the time of retirement.

 

Tax Saving Guide

NATIONAL PENSION SYSTEM (N.P.S)

  • N.P.S is market linked scheme offered by P.F.R.D.A for accumulating Retirement money.
  • With N.P.S you can claim additional deduction of 50,000 in section 80 CCD under income-tax over & above deduction of 1,50,000 in section 80 C.
  • Minimum investment of Rs 1000 each year, helps to earn market linked return at very low fees.
  • The compulsion at withdrawals is that at least 40% of amount has to be used to by annuity proceeds.

NATIONAL PENSION SYSTEM (N.P.S)

  • P.P.F is an ultra safe retirement vehicle offered by government through banks/post office.
  • P.P.F is suitable for both Salaried & Self- Employed individuals.
  • P.P.F has lock in period of 15 years, early withdrawals of 50% are allowed at the end 5 years.
  • This investment is completely tax free & returns are announced by center at beginning of each quarter.
  • Current interest rate is 7.1%.

LIFE INSURANCE

  • Insurance premium on policy that cover your life or lives of your spouse & children are eligible for 80 C deduction.
  • For traditional plans, U.L.I.P’s, pure term plan- if the premium amount is 10% of sum assured then they are eligible for tax deduction.
  • All income earner need to buy pure term covers to protect their dependents in event of death, and at the same time they can avail the tax benefit also.
  • In case of death of the insured it provides succour to the family.

NATIONAL SAVING CERTIFICATE (N.S.C)

  • N.S.C represents Government of India borrowing offered by Indian post it’s a 5 year ultra- safe saving bonds.
  • The interest is reinvested & paid on maturity, also eligible for 80 C deduction.
  • Investment in this scheme is locked in for 5 years.
  • Its an un-complicated scheme giving competitive return compared with bank deposit & fixed income options.
  • Current interest rate is 6.8%.

KISAN VIKAS PATRA ( K.V.P)

  • K.V.P is a debt oriented investment. It can be purchased for self or for minor.
  • The interest earned is compounded & reflects in the maturity value.
  • K.V.P is backed by government & therefore has guarantee of return/ principal.
  • Minimum investment is Rs 1000 & no limit on maximum investment.
  • These are transferable & can be encased after 2.5 yrs. from issue date.
  • Current interest rate is 6.9%.

SENIOR CITIZEN SAVING SCHEME (S.C.S.S)

  • This scheme is offered by Indian post / banks for citizens of 60 years of age or 55 years who have taken voluntary retirement.
  • Opening S.C.S.S account total deposit can be up to Rs 15,00,000, tenure of the scheme is 5 years extendable for 3 years.
  • Premature withdrawals are allowed after 1 year of account opening,
  • This scheme is for senior citizens which give higher return than bank deposit & other Small saving schemes.
  • It gives liquidity & safety from government.
  • Current interest rate is 7.4%.

SUKANYA SAMRIDDHI YOJANA (S.S.Y)

  • S.S.Y is for 2 girl child who is less than 10 years to fund their education & wedding expenses.
  • Minimum annual deposit required is of Rs 1000.
  • The account matures when the girl turns 21, 50% of withdrawal is allowed when girl turns 18.
  • This scheme is tax free, flexible & has fixed return.
  • Current interest rate is 7.6%.

DEFERRED OR IMMEDIATE ANNUITY PLAN

  • Annuity plans gives monthly pay-out in return for lump sum premium.
  • Annuity plan invest your money until retirement and pay annuities at future date.
  • Annuity plan guarantees you a fixed monthly cash flow for life.
  • That Annuity income is taxable at he slab rate.

HEALTH INSURANCE

Every individual/ H.U.F can claim deduction under section 80 D for medical insurance.
An individual can claim up to 25000 for insurance of spouse & dependent children.
Additional deduction for insurance policy of parents of 25000 (if parents age is below 60 yrs.) & 50,000 ( if parents are above 60 yrs.)

SAVING BANK INTEREST

Interest received from saving bank account is exempt from taxation under section 80 TTA/80 TTB of income tax.

Senior citizen (Above 60 years) – Rs 50,000.

Others – Rs 10,000.

CONSIDERATION BEFORE INVESTING

  • PUT RETURN FIRST.
  • MARKET OVER ASSURED RETURNS.
  • PLAN YOUR ALLOCATION.
  • FACTOR IN LIQUIDITY.
  • DON’T OVER DIVERSIFY

CONCLUSION

  • A young investor can afford to allocate 70-80% of annual investment to equities.
  • A young investor seeking liquidity with 80 C investments – E.L.S.S is the best suited with 3 year lock in period.
  • For the retired investor who is seeking liquidity S.C.S.S allows early withdrawal after 1 year is a good options.

Author Bio

Qualification: Graduate
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Location: AGRA, Uttar Pradesh, IN
Member Since: 24 Jul 2020 | Total Posts: 16
I have Cleared CA (intermediate) also cleared various series conducted by N.I.S.M (National Institute of Securities Market), Investment Advisory, Research Analyst, Merchant Banking & Retirement planning. Recently cleared exam of Independent Director conducted by IICA ( Indian Institute Of Corporate View Full Profile

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