When its March and you go on a ride for getting the most benefits of tax deductions. If you plan well then you can surely save some good amount of money with your tax plans. One of the most common option that we Indians use for Tax deduction instruments is Section 80C of the Income Tax Act. Some of you might have heard about it and others would certainly know what they are too. (One of the most popular contributions/investments are the EPF (Employee Provident Fund) and PPF (Public Provident Fund). There are some other investments options too which work under this.
Investments that saves Tax.
PPF or the Public Provident Fund – Its tenure is 15 years, Its return is 8% p.a, Minimum investment is Rs.500/. and max is Rs.70,000. The returns is assured but not fixed due to the change of interest that Govt makes from time to time. The invested amount can be deducted from taxable income.
EPF or Employee Provident Fund. Employee and Employer contributes 12& of annual income, of the total 24% contribution, 8.33% is for family pension plan. The balance 15.67% grows at a rate of 9.5% p.a the amount invested can be deducted from taxable income.
ELSS or Equity Linked Savings Schemes : Its tenure is 3 years minimum, there is no upper limit on the maximum investment, the earning potential is high and risky too, You can get returns of 10-15% returns with a good scheme over a longer period of time.
NSC or National Savings Certificate – Its tenure is 6 years, Its return is compounded half yearly 8%, with a minimum investment of Rs.500 and with no maximum upside bar. The invested amount can be deducted from taxable income.
FD or Fixed Deposit – Its tenure would be 5 years with a bank or post office. The return is 5-9% depending on the tenure, and tenure should be up to a maximum of 5 years to avail the tax benefits. The invested amount can be deducted from taxable income.
Pension schemes and Insurance.
Senior Citizen Savings Schemes: Its tenure is 5 years and can be extended to 3 years. By opening an account with a post office you can make investments. Investments should be in multiples of Rs.1000 and must not exceed Rs.15Lakh. Returns would be around 7-9% p.a You will be entitled for tax benefit only if you have submitted 15G or 15H forms.
ULIPs – Unit Linked Insurance Plans are basically Mutual funds which has an insurance component. The returns would depend on the scheme, Tax deductions apply irrespective of plans.
Life Insurance Schemes: Premium Payments are tax deductible, and the rate of returns depend on the scheme.
Mutual Fund Pension Plans: The invested amount can be claimed for tax deduction, returns vary with schemes.
Intrest accrued on NSC or National Savings Certificate provide tax benefits.
The amount that is paid as tuition and school fees for children education can be claimed for tax benefits.(Max 2 children)
The maximum amount of your home loan principal repayment are eligible for deduction u/s 80C for up to an amount of Rs.1Lakh.
You can invest in any of the mentioned schemes for attaining your tax benefits which are under section 80C. But one thing that you should keep in mind is that do not make an investment in more than Rs.1Lakh to any of the following instruments because they would allow only to a maximum amount of Rs.1Lakh. So the best option would be to make your investments spread out to all of the instruments. If you are a salaried person the PF contributions from your company are also included in this limit.
Please note that while thinking about making an investment with the PPF you should be aware that the returns mentioned are at present 8% p.a The returns are not fixed but they are assured only, In other sense it means that they can have an upside increase or a downside decrease with the rate of interest which would impact your investments. Apart from the tax benefits that you gain for PPF from 80C you are also entitled to exempt from tax for the interest income from the PPF investments under section 10(11) of the Income Tax Act.
You can make your tax plans well mannered and make the maximum use of it with proper planning. Note that the interest rates mentioned are prevailing when the article is written please do check them with the appropriate agency for the newest interest rates, this is an article just for reference.