Are you wondering if there have been any changes in your trusted tax-saving schemes and other sought after debt instruments? Let’s take a quick look at the instruments covered under these sections for the current financial year so that you can plan your last minute taxes. The section under 80C allows individuals to save up to Rs 1 lakh. The tax-payer can deduct Rs 1 lakh from the income by investing in various instruments. These instruments can be the following:
Employees Provident Fund
EPF gives an average return of 9.50 per cent. EPF is shared in equal proportion by both the employer and employee. The new rate (which is expected soon) may be reduced to 8.25 per cent. EPF is deducted by employers from the salary itself. The interest is tax-free. This money is saved under an EPF account number.
Public Provident Fund
PPF gives 8.6 per cent return PPF can be bought from any bank. Investors can invest up to Rs 1,00,000 per year. The return is 8.6 per cent. PPF offers a risk free investing option. The lock in period is 15 years and hence can be a very a good instrument for saving taxes and building a retirement fund.
National Savings Certificates
NSC gives returns upto 8.7 per cent. It can be bought from banks, post offices or any broker. The term is 5-10 years. The interest earned on this instruments is taxable.
Equity Linked Saving Schemes
ELSS gives returns between 12 and 18 per cent (subject to market conditions). Since it invests in equities, it’s risk exposure is higher. The lock-in period is three years. ELSS provides better returns over a longer term. Investors should keep in mind that they are investing in ELSS for returns and not only for tax-saving.
Infrastructure Bonds
This is the new hot investment for saving tax over and above the Rs 1 lakh possible under Section 80C. The returns vary from 8 per cent to 9 per cent. Since investors can save taxes on Rs 20,000, they should invest this amount. Investing more than Rs 20,000 may not be a good idea because other instruments provide similar rate of returns.
While you plan your investments, you may come across simple queries such as whether you must go for PPF or bank fixed deposit (FD). Today there are companies and banks which provide a better rate on their FD than PPF. However, investors have to understand the risk reward pay off in FD and PPF. Company FDs provide high returns, up to 11 per cent but they also expose investors to risk. In the case of bank FDs the interest earned is taxable. Hence a bank FD that offers 10 per cent on the deposit will provide you less than 8 per cent returns post-tax.
PPF is exempt from tax and hence qualifies as a better instrument especially with their limit extended and interest rate hiked.
Adhil Shetty, CEO, BankBazaar.com