Either INVEST or Pay TAX!

Sarvam Gupta 04 Feb 2019 1,506 Views 0 comment Print Income Tax | Articles

We are standing in the last quarter of the financial year 2018-19. Like every year, this year also, people are in a great dilemma as to where they should invest their funds to save tax and to earn a good return. The best practice to save tax and earn a good return is to start investing at the beginning of the financial year. But today, people are so much busy with the routine chores that they invest during these last three months of the year. A major demerit of following this practice is that it drops down the rate of interest on investment, which a person can easily earn if he invests for a full year or more.

I am writing this blog to clear the confusion among people as to which is the best option to invest in, at this point of time, to save tax and to earn a good return.

There are many options in the market where a person can invest and save his/her tax. But before investing anywhere, all the factors must be kept in mind like return on investment, risk involved, lock-in period, minimum and maximum amount that can be invested and many more.

Page Contents

List of most beneficial investment options for F.Y. 2018-19:

List of most beneficial investment options for F.Y. 2018-19:

1. Equity Linked Savings Scheme;

Equity Linked Savings Scheme, commonly known as ELSS, is a Tax Saver Mutual Fund.
The average return from ELSS is 9.78% in past three years.
There is a lock-in of just 3 years in this scheme.
The minimum investment involved is Rs.500/- with no limit on upper side.
One can reinvest the proceeds of matured ELSS after 3 years and can avail deduction for the current year.
As the returns are dependent on Stock Market, so it’s a high-risk investment.
Systematic Investment Plan in one or two ELSS is the best way to invest.

2. National Pension Scheme;

National Pension Scheme, commonly known as NPS, is a low-cost pension plan in the country.
The average return from NPS is 10.84% in past five years.
The lock-in is till you are 60 years of age.
The minimum investment involved is Rs.1,000/- annually.
Salaried employees can claim deduction up to 10% of their Salary (Basic + DA).
Self-employed can claim deduction up to 20% of Gross Total Income.
On death, entire amount is paid to the nominee.
The 60% of amount that can be withdrawn at maturity is tax free. The balance 40% must be compulsorily invested to buy an annuity.

3. Public Provident Fund;

Public Provident Fund, commonly known as PPF, is a total tax-free investment.
The current rate of interest on PPF is 8% for January-March 2019.
The lock-in is more than other investment options. It is normally 15 years and can be extended further for 5 years, at a time.
The minimum investment involved is Rs.500/- annually and maximum is Rs.1,50,000/- annually.
The interest earned on PPF is totally tax-free.
A loan can be taken against the PPF amount.
This is the safest investment option as it is backed by Government of India.
HUFs and NRIs are not eligible to open PPF account.

4. Senior Citizens Savings Scheme;

Senior Citizens Savings Scheme is for senior citizens who are 60 years or above, on the date of account opening.
People with 55 years of age who have voluntarily taken retirement, can open SCSS after 3 months of retirement.
The current rate of interest on SCSS is 8.7% for January-March 2019.
The minimum investment involved is Rs.1,000/- will maximum is Rs.15,00,000/-.
The interest earned on SCSS is paid quarterly and is fully taxable.
TDS will be deducted if total interest is more than Rs.10,000/- during the year.
A joint account can be opened for SCSS but only with Spouse.
No partial withdrawals are permitted before a period of 5 years.
HUFs and NRIs are not eligible to open SCSS account.

5. Sukanya Samriddhi Scheme;

Sukanya Samriddhi Scheme is introduced by Government of India to promote all round development of a girl child.
Account under this scheme can be opened for a girl child below 10 years of age only.
Maximum two accounts can be opened by a parent.
The current rate of interest on SSS is 8.5% for January-March 2019.
Deposit is to be made for 14 years and the account matures at 21 years from the date of opening.
The minimum investment involved is Rs.1,000/- annually and maximum is Rs.1,50,000/- annually.
The interest earned on SSS is totally tax-free.
Withdrawal of 50% amount is allowed when the girl turns 18 and that too for Marriage/Higher Education.
This is the safest investment option as it is backed by Government of India.
HUFs and NRIs are not eligible to open SSS account.

6. Unit Linked Investment Plan;

Unit Linked Investment Plan, commonly known as ULIP, is a combination of Insurance and Investment.
The average return from ULIPs is 8%-14% in past five years.
There is a lock-in of 5 years in ULIPs. But to reap the benefit of the plan, you must hold for a period of 10-15 years.
Amount received on maturity is totally tax-free.

7. Pension Plans;

Pension Plans from Insurance Companies are high cost products.
The average return from these plans is 8%-10% in past five years.
These are very inefficient plans and are not worth investing.
At the time of surrendering, tax benefit claimed earlier is to be reversed.
On maturity, the entire amount cannot be withdrawn and is compulsorily to be invested in an annuity.
Tax treatment of annuities and pension income is the main reason for not investing in these pension plans.

8. National Saving Certificate;

National Saving Certificate, commonly known as NSC, is a tax saving fixed deposit scheme from Indian Post.
The current rate of interest on NSC is 8% for January-March 2019.
There is a lock-in of 5 years in NSCs. Earlier it was 10 years.
The minimum investment involved is Rs.100/- with no limit on upper side.
A loan can be taken against the NSC amount.
The interest earned on NSC is eligible for deduction in the subsequent year.
It is a better investment option as compared to Bank’s Tax saving FDs.
This is the safest investment option as it is backed by Government of India.
HUFs and Trusts are not eligible to invest in NSC.

9. Bank Fixed Deposit;

Bank Fixed Deposit, commonly known as FD, is a convenient way to invest.
The current rate of interest on FD is 7.5%-8.25%.
There is a lock-in of 5 years in FDs.
Investment in Tax Saving FD is eligible for deduction under Income Tax Act, 1961.
The interest earned is fully taxable.
This is a high safety investment because amount up to Rs.1,00,000/- is insured by RBI.
This investment option is good for those who have left their tax planning for the last minute and are now running around searching for the best investment option.

10. Life Insurance Policy;

Life Insurance Policy doesn’t give that much return when compared to other investment options, but it is important in terms of protecting goals of an individual when he is not around.
The average return from these policies is 5% for a 20-year plan.
Term Plan is preferable than an Endowment Plan.
The investment in these policies should be made for your dependents and not for saving taxes.
The policy coverage must be 6-8 times the annual income of an individual.
Mutual Funds with Term Plans is a better option to invest than ULIPs.
The maturity proceeds from policy are tax free, subject to certain conditions.

These are the investment options that can be seen upon to invest for F.Y. 2018-19. The deadline to invest is 31^st March 2019, after which the amount invested will not be considered under deductions for F.Y. 2018-19. So, hurry up and invest as per your needs.

(This blog is authored by Sarvam Gupta, Co-Founder, Coherent Advisors™)

Disclaimer: The information contained in this article is intended solely to provide general guidance on matters of interest for the personal use of the reader. Before making any decision or taking any action, the reader should always consult a professional adviser relating to the relevant article posting.