Every employee has to declare his investment details in the beginning of a financial year, which is the preliminary step to tell your employer about your investment details. However, how many of you actually save taxes in the beginning of the year? Very few of you.
In India, most people rely on last-minute savings, but is it beneficial for you? Some instruments may give you good returns, but instruments like ELSS, which is a mutual fund, require timing the market. You may be able to save tax, but you may not be able to earn good returns if you have not timed your investments well.
Most of the investment avenues fall under Section 80C of the I-T Act 1961. This section provides you the benefit of up to Rs 1.5 lakh. However, there are other sub-sections under the same section which can also allow some additional benefits.
One should always avoid last-minute rush. It is also better to take the help of a financial adviser and do proper tax saving on time so that you not only save your taxes but you also earn better returns to fulfill your desired financial goals.
Here are 6 best tax-saving solutions which can help you in creating wealth:
Equity-Linked Savings Scheme
This fund comes up with an investment objective of long-term growth & capital appreciation. The investment horizon for the equity scheme is longer. ELSS fund has a lock-in period of 3 years, which enjoys the tax benefit of Rs 1.5 lakh under section 80C of the I-T Act. It has the minimum lock-in period compared to other investment avenues. Moreover, doing long-term investment in equity fund makes your investment tax-free. An ELSS fund may hold at least 80% to 100% of the holdings in equity securities.
Unit Linked Insurance Plan
ULIP is an insurance product that gives you protection cover plus investment-linked asset class which enables the policyholder to earn market-linked returns where a portion of the premium money is invested in various proportions towards equity and debt markets. One should know that the returns on ULIPs are linked to the performances of the market. The invested amount can be claimed for up to Rs.1.5 lakh under section 80C. They may offer a single premium option where a lump sum premium is paid once for a lifetime. The realisation of maturity benefits is again tax-free under section 10(10D) of the I-T Act.
Public Provident Fund
Mostly, a PPF account is opened by self-employees who do not get EPF benefit. However, PPF accounts can be opened by salaried people also. It has a lock-in period of 15 years and also enjoys the ‘EEE’ benefit where the invested amount, interest amount, and withdrawals on maturity are tax-free. Currently, PPF is providing 7.9% of return compounded annually. One should know that the interest amount is credited on March 31 every year. You can claim the invested amount under section 80C of I-T Act 1961.
National Pension Schemes
Investors can avail additional tax benefit of Rs.50000 over and above 1.5 lakh under section 80CCD (1B), which is a sub-section of section 80C under the I-T Act. You can also earn better returns as the amount you save under this scheme is invested under various asset classes, which helps in appreciating your invested capital over a longer time horizon. You can claim for deductions under section 80C as well where you can claim up to Rs 1.5 lakh under section 80CCD above which you can claim the additional benefit. The annuity income is fully taxable.
A five-year bank fixed deposit provides an investor a per-determined interest payments & assured returns on the deposited sum at the time of maturity. The returns vary between 7% and 8%, from bank to bank. It is mainly for those investors who are conservative and do not want to risk their money by investing in the market – rather they want to park their money safely in banks only. The invested amount in a 5-year bank FD is eligible for deduction under section 80C of the I-T Act for up to Rs 1.5 lakh.
Senior Citizen Savings Scheme
The Senior Citizens’ Saving Scheme is a tax savings avenue available for senior citizens whose age is 60 years or above at the time of opening the account. However, the age limit may get reduced to 55 years in the case where an individual is retiring on superannuation or under VRS, provided that the account is opened within a month of the date of receipt. The maturity cycle of this scheme is 5 years. An investor can open the account with a condition that the amount should not be more than Rs 15 lakh at any given point of time. The interest rate applicable to the scheme for Q1 2017-18 is 8.4% p.a, which is payable quarterly. The benefit of section 80C of the I-T Act is available on investment, but the interest received is fully taxable.