February is almost over and most people are trying to find the best tax savings investment options to maximize their benefits under section 80C of the Income Tax Act. From the financial year 2014 – 15, the deductions under this section have been enhanced to INR 1.5 lakhs from the previous sum of INR 1 lakh.
Individuals can save as much as INR 46,350 by investing an amount of INR 1.5 lakhs under section 80C of the IT Act. The next question is to determine the top 3 investment options that can help you save tax.
Public Provident Fund (PPF)
PPF has been one of the most popular instruments for reducing tax liabilities, something that becomes apparent enough when you use online tax calculators. The scheme has become more attractive because the interest is linked to the bond yield in secondary markets. Investors are therefore able to enjoy returns that are in line with the prevalent rates of other instruments in the market. Investors can earn 8.7% interest this year with tax-free returns on maturity. Another benefit of the PPF is that account holders can avail a loan between the 3rd and 5th year. At the end of 5 years, they can withdraw the amounts within certain guidelines.
Equity-linked Savings Schemes (ELSS)
As compared to most other tax savings instruments like the PPF or national pension scheme, the returns on these are higher, though not fixed. These funds have the lowest lock-in period of 3 years with a dividend option when investors can avail periodic returns. Individuals can reduce their burden through a monthly systematic investment plan (SIP) that also takes advantage of market fluctuations and can provide higher returns. The lock-in period of 3 years ensures investors can enjoy long-term capital gains that are not taxable.
New Pension Scheme (NPS)
This new plan provides tax benefits under many sections such as 80CCD1, 80CCD1B & 80CCD2 of the IT Act. Returns may vary based on your chosen option (active or automatic), with investors in 2013 earning up to 14%. Another advantage of the national pension scheme is the lower fund management charges (0.01%). Although there is no limit on the maximum amount that can be invested under the plan, the tax benefits are available (A) for an amount up to INR 1,50,000 under Section 80CCD(1) (B) over and above an amount of INR 50,000 under Section 80 CCD (1B) from FY15-16 and (C) for corporate sector employees addition to the previous two 10% of Basic+DA without any cap can be invested and tax exemption can be claimed under Section 80CCD2. Accumulated corpus can be invested in different asset classes like equity, corporate bonds, and government securities.
Investors are advised to take the time to research other investment avenues and gain further understanding of these financial instruments. Use tax calculators on financial websites and seek further assistance if you are finding it difficult to make a decision.
