Unlike developed countries, India does not have a comprehensive social security scheme. Therefore, individuals have to primarily rely on their own savings and retirement funds. In this context, Provident Fund and Public Provident Fund are two most popular saving instruments to create a pool of funds to meet your long-term financial needs. An employees contribution towards the Provident Fund is eligible for tax deduction. In case of self-employed individuals, a contribution can be made to the Public Provident Fund up to R70,000 per annum.
Also, there are different kinds of life insurance policies, including term insurance, money-back, market-linked, endowment, etc. While policies like money-back and endowment offer investment along with insurance, they tend to be more expensive than term insurance, which is a pure life insurance policy. Investment avenues under the Post Office schemes include National Savings Certificate, Senior Citizen Savings Scheme and the Post Office five-year time deposits. Post offices in India have a good coverage and the interest rates do not vary as is the case with banks and other deposits schemes.
The most popular one here are the equity-linked savings schemes offered by mutual funds. These have a three-year lock-in period, and individuals who have a higher risk appetite may consider this option, which may provide them higher returns. A term deposit with a scheduled bank, for a period of five years or more, is also eligible for deduction. Fixed deposits with banks have been quite popular, especially after the recent substantial increase in term deposit interest rates.
Tuition fees for full-time education in any Indian university, college, school or educational institution, for any two children, is eligible for deduction. The principal amount re-paid against a home loan to banks or certain category of employers is also eligible for deduction. Stamp duty, registration fees and other expenses incurred for the purpose of acquisition of such a house are also eligible for deduction. However, the cost of renovation/house repairs after the completion certificate is issued or the house is occupied, is not eligible for deduction. A tax-payer should have a good mix of various schemes to ensure reasonable returns. For example, you can consider an additional investment of R20,000 in long-term infrastructure bonds over and above the R1 lakh limit under Section 80C of the Act.
The writer is director, tax and regulatory services, KPMG