1. ELSS Fund or Tax Saving Mutual Fund: Investment in ELSS (Equity Linked Saving Scheme) Fund or Tax Saving Mutual Fund is considered as the best tax saving option. These funds are specially designed to give you dual benefit of saving taxes and getting higher returns on investment.
Ø Delivered historically higher returns than FD, PPF or NPS
Ø Min. Locking period of 3 years
Ø Interest earned is partially taxable
Ø Save upto Rs 46,800 in taxes.
2. Investments in Tax Saving FDs: Tax-saving FDs are like regular fixed deposits but come with a lock-in period of 5 years and tax break under Section 80C on investments of up to Rs 1.5 lakh.
Ø Eligibility: Can only be opened by Resident Indian individuals.
Ø Investment Limit: Minimum investment limit is Rs 1000.
Ø Tax Treatment: Interest earned in taxable.
Ø Rate of Interest: FD interest rate across different banks ranges from 5.5% to 7.75%
Ø Liquidity: Fixed Deposits have lock-in period of 5 years.
3. Investments in PPF (Public Provident Fund): PPF are long term investments backed by government of India. Deposits made in a PPF account are eligible for tax deductions under Section 80C.
Ø Eligibility: Can only be opened by Resident Indian individuals, salaried and non-salaried individuals. A HUF cannot open a PPF account.
Ø Investment Limit: Minimum and maximum investment limit is Rs 500 and Rs 1.5 lakh respectively.
Ø Tax Treatment: Interest earned is tax-free.
Ø Rate of Interest: Current interest rate is 8.0% p.a.
Ø Liquidity: PPF account have lock-in period of 15 years, but can be further extended by 5 years. Partial withdrawals are allowed after 7 years.
4. Investments in EPF (Employee Provident Fund): EPF is a retirement benefit scheme that is available to all salaried employees. This amounts to 12% of basic salary + DA, that is deducted by an employer and deposited in the EPF or other recognised provident funds.
Ø Eligibility: Can be opened by employee with basic salary greater than 15,000 /month
Ø Investment Limit: Both employer and employee have to contribute a minimum 12% of Basic Pay + D.A.
Ø Tax Treatment: Entire PF balance (including interest) is tax-free, if withdrawn after continuous service of 5 years
Ø Rate of Interest: Interest rate on the EPF is 8.5% for the financial year 2020-21.
Ø Liquidity: Can withdraw PF balance after 2 months of leaving job and does not take up employment within two months with an employer covered by PF Act.
5. Investments in NPS (National Pension System): The NPS is a pension scheme that has been started by the Indian Government to allow the unorganised sector and working professionals to have a pension after retirement. Investments of up to Rs 1.5 lakh can be used to avail tax deductions under Section 80C.
Ø Eligibility: Can be opened by every Indian citizen between the age of 18 and 60.
Ø Investment Limit: No limit on maximum contribution
Ø Tax Treatment: Employer contributions are tax-free
Ø Rate of Returns: Returns rate on the NPS varies between 12% – 14%
Ø Liquidity: Partial withdrawals are allowed after 15 years but under special conditions.
6. Investments in ULIP (Unit linked Insurance Plans): ULIPs are a mix of insurance and investment. A part of the invested amount in ULIPs is used to provide insurance and the rest of the amount is invested in the stock markets. Investments of up to Rs 1.5 lakh in ULIPs are eligible for tax breaks under Section 80C.
Ø Eligibility : An investor can buy ULIP for self or spouse or child
Ø Investment Limit: No limit on maximum contribution
Ø Tax Treatment: Investment and withdrawals & maturity amount are tax-free
Ø Rate of Returns: Return rate on the ULIP varies between 12% – 14%
Ø Liquidity: Interest rate varies as it is market linked
7. Investments in Sukanya Samriddhi Yojana: Sukanya Samriddhi Yojana/Scheme is one of the most popular schemes by the Government of India. The scheme is aimed at the betterment of girl child in the country.
Ø Eligibility : Parents/guardians can open an account in the name of a girl child till she attains the age of 10 years
Ø Investment Limit: Investment is limited to maximum Rs.1,50,000 in a financial year
Ø Tax Treatment : Investment and withdrawals & maturity amount are tax-free
Ø Rate of Interest : Interest rate on Sukanya Samriddhi Yojana is 8.5%
Ø Liquidity: Up to 50% of the deposit amount can be prematurely withdrawn once the girl reaches the age of 18 years.
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