In view of this, Mint has listed key options–prices, security, returns and lock-in interval–of main investments out there beneath part 80C together with their tax guidelines that can assist you decide the most suitable choice for you.
PPF
Public Provident Fund (PPF) is among the many hottest tax saving choices on condition that it enjoys sovereign assure and tax exemption on funding, withdrawal and partially on accrual. PPF comes with a 15-year lock-in, after which you select to increase your funding in a block of 5 years. Present rate of interest on PPF is 7.1%, making it higher than financial institution mounted deposits (FDs). Nevertheless, the PPF charge is reviewed each quarter.
Tax-saving FD
Although the funding made in a 5-year tax-saving mounted deposit is deductible, curiosity earned on it’s absolutely taxable and is topic to tax deducted at supply (TDS). Taxable curiosity can offset the tax profit availed on the funding to an extent, particularly for these within the 30% tax bracket. Take as an illustration, post-tax return on an FD providing 5.5% rate of interest shall be 5.2%, 4.3% and three.7% for tax slabs of 5%, 20% and 30%, respectively.
NSC
Nationwide Financial savings Certificates, or NSC, provides assured return, which is revised quarterly by the federal government, comes with a lock-in of 5 years and its curiosity can be claimed as deduction beneath Part 80C. The curiosity will not be paid out to the investor and as a substitute is reinvested, which suggests the taxpayer can declare it as an funding beneath 80C. Nevertheless, since curiosity earned within the fifth yr of holding will not be reinvested and is paid out with the entire accrued quantity, it can’t be claimed as deduction.
Conventional Insurance coverage Plan
Life insurance policy are bought essentially the most in the course of the Jan-March interval when taxpayers hurry to make last-minute tax saving investments. They promise deduction on premium, tax-free earnings on maturity and insurance coverage cowl. Foremost, single premium insurance policies, which many choose to exhaust the 80C restrict, might not qualify for tax break at maturity proceeds, stated Lovaii Navlakhi, chairman, Affiliation of Registered Funding Advisors (ARIA). “On maturity or demise declare, your entire proceeds are exempt supplied the annual premium has not exceeded 10% of the sum insured in any yr. Usually, single premium insurance policies won’t fulfil this standards and therefore the proceeds are more likely to be taxable,” Navlakhi stated.
Furthermore, insurance coverage cowl provided is inadequate and yield works out to be 2-4%. Endowment or conventional insurance coverage insurance policies are most likely the worst option to save tax. Security-seeking taxpayers ought to take a look at NSCs and PPF rather than endowment plans.
ELSS
Monetary planners advise Fairness-linked Saving Scheme (ELSS) as the perfect tax-saving funding. “ELSS helps save tax whereas providing wealth creation over the long-term with equities because the underlying asset which have sturdy development potential,” stated Prableen Bajpai.
ELSS funds have the shortest lock-in of three years amongst all 80C investments, they usually rating excessive on flexibility. “The simplicity of ELSS funds in addition to the readability that that is 100% in fairness make them a most popular product for tax saving,” stated Navlakhi.
ULIP
Unit-linked Insurance coverage Plans (Ulips) are market-linked insurance coverage merchandise. Premium qualifies for deduction beneath part 80C, maturity proceeds or demise declare is tax-free when the annual premium doesn’t exceed ₹2.5 lakh and partial withdrawals after 5-year lock-in additionally don’t entice tax if the quantity withdrawn is lower than 20% of the fund worth. In fact, the policyholder additionally will get a life cowl.
As per Navlakhi, in comparison, ELSS funds rating over Ulips. “Ulips don’t provide simple exit or switch choice in case the policyholder desires to modify to a different Ulip coverage or a greater fund supervisor,’’ he stated. In ELSS, buyers can change to a different fund after the 3-year lock-in. The benefit Ulips have over ELSS is that buyers can change between debt and fairness at low or no prices, which is useful for managing asset allocation. “From anecdotal proof, evidently this function will not be used continuously,” pointed Navlakhi.
NPS
As much as 10% of the essential wage or 20% of gross complete earnings for salaried and self-employed taxpayers, respectively, could be claimed as deduction for funding made in NPS (nationwide pension system) tier-1. So, as an illustration, in case your fundamental wage is ₹3 lakh and also you’ve invested ₹80,000 in NPS, solely ₹30,000 could be deducted beneath 80C. Nevertheless, you possibly can declare an extra deduction of ₹50,000 beneath Part 80CCD(1B).
“Wage thought of to calculate deduction beneath Part 80C consists of fundamental pay and dearness allowance. It might additionally embody fee decided at a set share of the wage,” stated Sandeep Sehgal, partner- tax, AKM International.
For tier-2 accounts, solely authorities workers are given the 80C deduction profit however on the situation of 3-year lock-in.
Supply: Live Mint