There are numerous ways to save more taxes and enjoy the maximum savings. But still, most people are not enough keen on the various investment approach and put tax planning on hold. As a smart investor, you must be keen on the things such as safety, liquidity, risk and returns. Having an understanding of how the returns are taxed is a must. Right? Otherwise, you will not be able to increase your wealth over the long term. Therefore, we have explained some of the main forms of investments under section 80C.
Most forms of tax-saving investment fall under section 80C of the Income Tax Act, of 1961. The investments made by the investor are qualified for tax exemption up to a maximum limit of Rs. 1, 50,000. There are very few investment forms that provide a further tax deduction above this limit. So take your cup of tea and let’s get into the best tax-saving investments under section 80C.
ELSS (Equity linked Saving Scheme)
ELSS has come to know as one of the best slices of investments due to the higher returns and tax purposes under section 80C. A tax rebate for good returns appears a good way for investors. At least 80% of the corpus is invested in equity under ELSS funds which represents that the returns are full of volatility. However, investing in ELSS can be highly rewarding from a longer-run perspective.
ELSS has provided about 13-15% returns to its investors in the last three years and 16-18% returns in the last five years. Assume for a while, your income fall in the 30% tax bracket, and you can make whopping returns compounded with tax rebate in ELSS. Moreover, ELSS funds are locked in for 3 years even though the post-lock-in period you can continue the investments. Additionally, the ELSS investments are tax-exempted under section 80C compared to other options.
Taxability - ELSS investments are tax-exempted under section 80C when compared to the general investments in mutual funds subjected to 10%.
Liquidity - When an individual serves the mandated lock-in period, ELSS is among the most liquid fund to be sold.
NPS (National Pension Scheme)
NPS or national pension scheme can be one of the best tax-saving options. While taking a decision to save your income tax, NPS can help you save your tax under three various sections.
Individuals can claim general tax deductions up to Rs.1,50,000 under section 80C, and can also claim additional deductions up to Rs.50,000 under section 80CCD(1b) by investing only in NPS. Further, if the employer agrees to put 10% of your basic salary in your NPS account, that amount will not be taxable.
Additionally, the NPS is zero-cost with no-frills market-linked products that help eliminate the risk and diversify the investments with secured options like government security and corporate debt. A major point of NPS is that it charges a fee of 0.01% a year to manage your investments compared to other active fund managers who charge a 1-3% fee a year.
Fixed deposits (FDs)
An FD, also known as a fixed deposit, is an investment instrument offered by banks and non-banking financial companies (NBFC) to their customers to save more money. People with an FD can invest sizeable money at a predetermined interest rate for a fixed period.
Going with the fixed deposit also can be another to get tax deductions under section 80C of the income tax act. However, fixed deposits provide a 5-year lock-in period and the returns are not so high. Additionally, the investments made in FDs are fully taxable which results in fewer returns about 5.5% which does not seems well right!
However, the interest rates on the investments depend on the banks as they can vary from one bank to another based on the applicant's categories. FDs can be a good option for minute tax-saving decisions. Your investments are also not locked for the long-term as happens in NPS and obtain almost moderate returns better than other options such as ULIP.
Public Provident Fund (PPF)
The Public Provident Fund (PPF) is a very prevalent long-term savings scheme in India because of the combination of tax savings, safety and returns.
PPF has been a popular tax-saving option for a long time because it is a government-backed guaranteed return with a lock-in period of about 15 years. But it is seen ‘in recent times’ that the PPF has lost its shades due to the other attractive investments under section 80C including NPS and ELSS.
A public provident fund is chosen by most individuals who seek secure and guaranteed returns of about 8% on their investments. PPF investment is also exempted from income tax, and it is more liked by individuals compared to fixed deposits.
The maturity period of PPF is of 15 years which makes it a long-term investment and you also can withdraw 50% of the invested amounts after 5 years under certain conditions. If you want safe, secure and long-term investment goals then PPF would be the best option.
Unit Linked Insurance Plan (ULIP)
ULIP is another tax-saving investment scheme that helps investors to get tax exemptions as well as higher returns on their investments over the long-term period. However, the new type of ULIP launched by insurance companies comes with zero premium and administration charges. Moreover, one can get the benefits on the taxability of income on the premium paid towards the policy under section 80C of the IT act.
The ULIPs are formed with their own perplexities which can make you think for a while before making any investment in the scheme. However, the lock-in period of 5 years in ULIP is something essential to know. In case you break the policy, then the returns can be affected broadly and fetch you out of the insurance coverage.
Also Read - Deductions under various sections
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