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If you are at a loss on the investment options available under Section 80C of the Income Tax act, here’s listing a few of them.
ELSS mutual funds
Equity Linked Saving Schemes give you full tax saving benefits under Section 80C. Apart from helping you save tax, ELSS funds also grow your wealth for the long term as they invest in equities. They also give you the benefit of small monthly contributions instead of a lump sum amount, which helps reduce the effects of volatile equity markets. ELSS funds, out of all the Section 80C options, have the lowest lock-in period of three years. Take care to select the right funds besides reviewing them regularly.
Equity Linked Saving Schemes give you full tax saving benefits under Section 80C. Apart from helping you save tax, ELSS funds also grow your wealth for the long term as they invest in equities. They also give you the benefit of small monthly contributions instead of a lump sum amount, which helps reduce the effects of volatile equity markets. ELSS funds, out of all the Section 80C options, have the lowest lock-in period of three years. Take care to select the right funds besides reviewing them regularly.
5-year bank FDs
Bank fixed deposits (FDs) are a favourite, mainly because of the high safety. For tax-saving purposes, you have a five-year lock-in deposit scheme where you get tax exemption up to ₹1 lakh. They offer slightly higher interest rates compared to normal FDs (0.25-0.5 per cent higher).
Bank fixed deposits (FDs) are a favourite, mainly because of the high safety. For tax-saving purposes, you have a five-year lock-in deposit scheme where you get tax exemption up to ₹1 lakh. They offer slightly higher interest rates compared to normal FDs (0.25-0.5 per cent higher).
But there is no liquidity — premature withdrawal is not possible, even if you’re willing to pay a penalty. Next, the interest earned is taxable.
Public Provident Fund
PPF is a good option to save tax while incurring no tax on the interest too. Returns are linked to the previous year’s bond yields and are thus liable to change.
PPF is a good option to save tax while incurring no tax on the interest too. Returns are linked to the previous year’s bond yields and are thus liable to change.
The interest is tax-free; and you can do a lumpsum or small regular investments. The downside is that the convenience of online investing is limited. The lock-in period is long — 15 years, and you can extend it for five-year blocks. PPF accounts offer you some liquidity, subject to conditions.
National Savings Certificate
You can invest in NSC via your local post office and can claim tax benefit up to ₹1.5 lakh. NSC interest rates are fixed in April every year. The current rate is 8.5 per cent for five-year lock-in and 8.8 per cent for 10-year lock-in. The interest is taxable. However, one key difference is the interest is re-invested. If the reinvested interest takes the total beyond the ₹1.5 lakh limit, you will have to pay tax on the additional amount.
You can invest in NSC via your local post office and can claim tax benefit up to ₹1.5 lakh. NSC interest rates are fixed in April every year. The current rate is 8.5 per cent for five-year lock-in and 8.8 per cent for 10-year lock-in. The interest is taxable. However, one key difference is the interest is re-invested. If the reinvested interest takes the total beyond the ₹1.5 lakh limit, you will have to pay tax on the additional amount.
National Pension System
There are two types of NPS accounts — a compulsory Tier-I and a voluntary Tier-II account. You need to have an active Tier-I account to avail of a Tier-II account.
There are two types of NPS accounts — a compulsory Tier-I and a voluntary Tier-II account. You need to have an active Tier-I account to avail of a Tier-II account.
Tier I account is a non-withdrawal account meant for savings for retirement while a Tier II account is simply a voluntary savings facility. You can withdraw savings from this account. There is no tax benefit on this account. The appreciation accrued on the contribution and the amount used by the subscriber to buy the annuity is not taxable. Only the amount withdrawn by the subscriber after 60 is taxable.
Pension funds
Pension funds are a variant of life insurance and come in two flavours — deferred and immediate annuity. In deferred annuity, you can invest annually until your retirement. Once you retire, you can withdraw up to 60 per cent of your accumulated corpus and re-invest the balance in an annuity fund which will give you a monthly pension. For immediate annuity plans, you can invest one-time and get monthly pension from the next month itself.
Pension funds are a variant of life insurance and come in two flavours — deferred and immediate annuity. In deferred annuity, you can invest annually until your retirement. Once you retire, you can withdraw up to 60 per cent of your accumulated corpus and re-invest the balance in an annuity fund which will give you a monthly pension. For immediate annuity plans, you can invest one-time and get monthly pension from the next month itself.
The writer is CEO, scripbox.com
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