Tax Savings – Section 80C – Part IKapil
There are avenues such as ELSS (Equity linked savings scheme), 5-Yr tax-saving bank fixed deposits (FDs) of banks, PPF (Public Provident Fund), EPF (Employee’s provident fund), VPF (Voluntary provident fund), NSC (National Savings Certificates), Various types of Life Insurance schemes, ULIPs (Unit-linked insurance plans), 5-Yr Post Office Time Schemes, NABARD (National Bank for Agriculture and Rural Development Bonds) and Life Insurance Premium
Equity linked savings scheme (ELSS)
This is considered as the one of the best 80C option. It is a mutual fund scheme investing entirely in equities and therefore has the potential to deliver the best returns. There is a 3-yr lock in which is involved in this option. (This is also the shortest lock in period available when compared to other avenues) You can visit the following sites to get more information on the best performing mutual funds in this category www.valueresearchonline.com. Some of consistent good performers in this category are Canara Robeco Equity Tax Saver, HDFC Taxsaver, Sundaram Tax Saver.
PPF – Public Provident Fund
This is a assured returns small saving schemes. Current rate of interest is 8% and the normal maturity period is 15 years. The interest earned on deposits in PPF accounts is fully exempted from income tax. Minimum contribution is Rs 500 and maximum is Rs 70,000. (There is flexibility to make Deposits in installments up to maximum 12 installments) Note that the interest rate is assured but not fixed. The interest and principal in a PPF account cannot be attached by a court decree. Open a PPF account and invest at least the minimum amount of Rs 500, maintain every year, even if you do not intend on using it for investment immediately. The reason is that after 10+ years, original lock in period of 15 years will get reduced to just < 5 years. And this is of good advantage for parking funds, assured returns, (for short period) at that point in time in future.
EPF – Employee’s Provident Fund
PF is deducted from your salary.You and your employer contribute to it. Your contribution forms part of 80C investments.
NSC – National Savings Certificate
This is a 6-Yr small savings instrument . Rate of interest is 8% compounded half-yearly, so, the effective annual rate of interest is 8.16%. If Rs 1,000 is invested, then it becomes Rs 1601 after 6 years. Minimum amount is Rs 100/-. There is no max limit. The interest accrued every year taxable, Interest accruing annually is automatically reinvested, and such re-invested interest qualify for tax rebate under section 80C of the Income Tax Act.
POTD – 5-Yr Post-Office-Time-Deposit Scheme
Post Office Time Schemes are similar to bank fixed deposits. Scheme offers the facility of investing surplus funds at relatively higher rates of interest. They are available for variable duration like one year, two year, three year and five year. However , 5-Yr post-office deposit qualifies for tax saving under section 80C (This is w.e.f financial year 2007-2008, assessment year 2008-2009). This offers 7.5 per cent rate of interest and the Effective rate is 7.71% per annum (p.a.). The rate of interest is compounded quarterly but paid annually. The Interest is entirely taxable. Minimum amount is Rs 200/-. No Maximum limit.
BTDS – 5-Yr Special Bank Term Deposit
BTDS is the only deposit scheme with banks where tax benefits under section 80C are available to depositors. Interest rate varies from bank to bank. Interest is taxable. Tax is deducted at source. Unlike FD’s , premature exit is not possible. For , as of Feb 2010, Eg: Axis Bank Interest Rates On Domestic Deposit is 7% (7.5% for Senior Citizen). Interest Rate for Tax Saver deposit is 7.25% (8% for Senior Citizen). Minimum amount is Rs 100/-. Maximum amount is Rs 1,00,000/-
POSCS – Post Office Senior Citizen Savings Scheme 2004
Post Office Senior Citizen Savings Scheme (SCSS) is the is meant only for senior citizens.It is the most lucrative scheme. Current rate of interest is 9% per annum payable quarterly.Interest is payable quarterly and not compounded quarterly. Thus, unclaimed interest on these deposits will not earn any further interest. Interest income is chargeable to tax. Minimum amount is Rs 1,000/- and maximum amount is Rs 15,00,000/-.
I will continue this post in next couple of days and cover other avenues as well……