31st March is nearly upon us and taxpayers are in a hurry to complete investments that can help them claim tax benefits this financial year. One popular option is to claim tax exemption under section 80C of the Income Tax Act. Year 2014 saw the maximum limit of investment under section 80C rise to Rs.1,50,000 giving all tax payers something to smile about.
There are a number of tax saving instruments that are covered by section 80C. The most popular ones include Bank Fixed Deposits, National Savings Certificates (NSC), Equity Linked Savings Scheme (ELSS), National Pension Scheme (NPS), Repayment of Housing Loan (principal amount) Public Provident Fund (PPF), Voluntary Provident Fund (VPF) and Insurance Preimum (most popular Online Term Plans). Each of these schemes have varying amounts of flexibility, lock-in periods, safety and returns. Moreover, in some cases like Bank FDs, the interest accrued is not exempt from tax. Thus, before investing in any option under section 80C, one must diligently weigh out this options. While to a layman, these financial nuances might sound like a lot of jargon, taking the right decision can actually end up saving you a lot of money (especially so, if you fall in the 20%-30% tax bracket).
We have listed down the best options to invest under section 80C that a taxpayer can avail before 31st March this year. Anybody who has forgotten to claim the benefits of this provision of the Income Tax Act can still take the right decision by reading through our article.
1. Online Term Plan: In terms of flexibility and cheapest preimum, online term plans are a prudent decision on the part of the smart investor. To simplify, a term insurance policy is an insurance policy that is in force for a fixed term (usually defined in number of years). During the agreed term, the policy holder will pay a fixed preimum amount for a specified period (i.e. Policy term) and If he/she dies within the insurance term, the next of kin is eligible for the full amount (sum assured) of death benefits as outlined in the policy agreement.
Premiums paid for the term plans are tax exempt under section 80C of the Income Tax Act. Moreover, there is no maturity amount on online term plans because of very less preimum. Online term plans usually cost lower than their physical counterparts and as since there is no insurance agent involved, you can rest assured that no part of your premium is being diverted into the agent’s commission.
Let us list down a few key benefits of online term plans:
Most key players in the market like Future Generali, HDFC life, ICICI and SBI offer online term insurance policies that can benefit their customers. At present Future Generali Life Insurance and HDFC Standard Life is provding cheapest insurance in most of the age and sum assured combination but we suggest to go through all the terms and conditions before buying any online term plan.
The online term plans can be bought very conveniently without having to go through the hassle of physical paperwork. Future Generali Life Insurance provide an online premium calculator as well so that you can form a fair idea of the involved costs.
You can check out the FG Online term plan at the following location: http://goo.gl/wwz0H0
Also, you can check out the HDFC Standard Life Plan here – http://goo.gl/SSo0mQ
2. National Pension Scheme (NPS): NPS is one of the most convenient tax schemes to subscribe for. In fact, a National Pension Scheme can be activated within 30 minutes. With the NPS, you can choose from a large number of investment options and also have the freedom to choose a Pension Fund Manager of PFM. You can also switch from one investment plan to the other and even change your PFM and thus enjoy returns which are linked to the market. The key benefits of the NPS are as follows:
For opening an NPS account, you can navigate to enps.nsdl.com for registering yourself to get the NPS account opened in 30 mins. If the Bank you’re holding your account in is empanelled with National Securities Depository Ltd (NDSL) (Right now they have 17 banks empanelled), you can apply online for NPS, and KYC process will be taken care by your bank.
For investor whose Aadhar card is linked to their bank account, this process is as simple as receiving OTP on registered mobile number for validation. Once the registration is done and KYC is processed by bank, PRAN (Permanent Retirement Account Number) will be alloted, which can be used to Invest in the scheme.
3. Equity Linked Savings Scheme (ELSS): In terms of flexibility, high returns, transparency and portability, ELSS is one of the best options available for investment under section 80C of the Income Tax Act. This is the only option available in market which can beat the inflation in long run. Moreover, the lock in period is just 3 years which is considerably lower than other tax saving instruments covered by 80C. ELSS Mutual Funds are basically nothing other than mutual fund schemes that invest 65% to 100% in equity and equity related instruments which are then notified to be eligible for tax benefits. Although an element of market risk is involved, ELSS is a great option for moderate-risk investors looking for tax saving options.
If you choose SIP route to invest in ELSS Fund then there may be chance to get more returns. Investor who took SIP route in the past 5 years have made more money then lumpsum.
The major benefits of ELSS MFs are as follows:
4. Rajiv Gandhi Equity Tax Savings Scheme (RGESS): Another tax saving scheme for small investors, the RGESS was announced in the 2012 budget. You need to be a first time investor in the stock-market and earn less than 12 lakhs a year to be eligible for taking part in the RGESS scheme. A maximum tax deduction of 50,000 INR can be claimed under section 80C.
The main benefits of this scheme are listed below:
Fail to Submit proof to HR
Don’t worry if you failed to submit the proof to HR of your investments, you can easily incorporate the same at the time of filing of Income Tax Return and claim refund from Income Tax department.
We know that without proper knowledge of the different tax saving schemes available, the task might seem very difficult, and that’s why it’s much more than beneficial to take help from Financial Advisor. Though, with this article we believe we have covered the basic knowledge required to save taxes this financial year. Make the smart decision. Happy investing!