It’s the start of a new financial year and another chance for us to set things right. Very often we put off our tax saving investments to the last minute and end up doing it in a rush. We should always try to follow a systematic investment plan. So whether its investing in PPF or Tax Saver mutual funds, it is always better to do it on a regular basis to get good returns.
The time to start your tax savings under section 80 C for the current year (FY 2018-2019) is today. Here are the various options you can look at:
- EQUITY LINKED SAVINGS SCHEME (ELSS)-
ELSSs are basically diversified schemes of mutual funds that carry the benefit of Section 80 C, meaning the amount invested in these can be claimed as deduction. These funds come with a 3 year lock in period. These funds have the potential of giving high returns and thus, needless to say come with the risk associated with equity investments. Though the lock-in period is 3 years please keep in mind that equity investments should always be done with a 7-8 year time horizon. There is no upper limit on the amount that can be invested in these but the tax benefits are only available upto Rs 1.5 lakh.
- PUBLIC PROVIDENT FUND (PPF)-
PPF is a good long term tax saving investment as the accounts have a 15 year time horizon. The returns on these investments are not fixed and are subject to change as per norms laid down by the government. At present the rate of interest is 7.6% on this. The main benefit of PPF is that the entire interest earned is tax free. The maximum amount that can be invested in a year is Rs 1.5 lakh.
- EMPLOYEES PROVIDENT FUND (EPF) & VOLUNTARY P F-
Both of these are good options to be considered in tandem with PPF investments. An employee contributes 12% of his salary to EPF. The employer also contributes the same however only 3.67% of the amount goes towards employee’s EPF. At present the rate of interest on this is 8.6%. Voluntary PF as the term suggests is up to the employee whether he/she wants to contribute more than the EPF and if so what amount.
- SUKANYA SAMRIDHI SCHEME
This is an ideal investment for anyone who has a girl child below 10 years of age. In this scheme you can open a minor account for her in a post office / select bank branches. Any amount deposited in these accounts qualifies as tax savings under Section 80C. The minimum annual deposit amount is Rs 1000 and the maximum is Rs 1.5 lakh. This scheme will always get a higher rate of interest as compared to PPF. The current rate is 8.1%.
- TAX SAVING FIXED DEPOSITS-
These are of 2 types. One is the Senior Citizen Scheme for all those who are above 60 years of age, wherein then can invest a maximum of Rs 15 lakhs and the current rate of interest which is 8.3% is payable quarterly. The other is the normal bank tax saving fixed deposit which give around 6.75% interest as on date. These are absolutely safe investments but please note the entire interest is taxable and if you happen to be in the 30% tax bracket your post tax returns would be below 5%. Both categories have a five year lock in.
- LIFE INSURANCE POLICIES-
Any amount that you pay toward Life Insurance premium for yourself, spouse or your child can also be included in Section 80C deduction. There are two main categories Traditional policies and ULIPs. These have higher charges vis.a.vis PPF or even ELSS. However in general, Life insurance polices should be taken for risk coverage and not for wealth creation.