In today’s post we talk about some Best Tax Saving Schemes In India. As viewed and read in the previous article Tax Planning has many benefits but finding the right product could be a little cumbersome, as we need to see if the product answers all the below questions –
Is it too long term? Is it mid or short term? Are the returns fixed? Is there high risk?. Once we have the answers to all these questions, we would be in a position to make a more educated decision.
In this article, we will do a comparative analysis of the popular investment related or savings products, that are chosen in general.
Best Tax Saving Schemes In India
The products are as follows: –
1) ELSS
Equity Linked Savings Scheme, is a category of mutual funds which enables investors to get the 80/c benefit up to 1.5 lakh Rs. These funds just like other mutual funds provide you with units at an applicable NAV (Net Asset Value) during the time of investment. As this category is an equity-based investment, it would by default come with some related risk, which means that the returns are not guaranteed. However, the expected returns as per past records are within the range of 12-15 %, which is much better than some of the other products. The lock-in period is also the lowest, which is 3 years. So, from a general perspective, ELSS seems a really good option. With the implementation of the new Long-Term Capital gains tax, ELSS does, however, face a minor setback as gains above 1 Lakh will be taxable up to 10%. (More on ELSS and its advantages in the next article).
2) PPF
Public Provident Fund or as the salaried class would see in their salary slips ‘pf contribution‘ or ‘provident fund ‘, is one of the most common Investment products wherein tax saving is also possible. The investment is risk-free and thus caters to the elderly class of investors that are nearing toward retirement or even those that have already retired. The returns on the product aren’t the highest, as we have seen a trend in the rates reducing over the last couple of years and is now currently at a meagre 8.1%. The returns however on the product are tax-free and guaranteed. The lock-in, however, is for 15 years, with specific criteria in case of withdrawal.
3) NPS
National Pension Scheme, is a Government-sponsored pension scheme, was initially launched for government employees in 2004. It was opened to all sections in 2009. A subscriber can contribute regularly in a pension account during his/her working life, withdraw a part of the corpus in a lump sum at the age of 60. Further, he can use the remaining corpus to buy an annuity in order to secure a regular income after his retirement. If a person chooses to withdraw before the age of 60, then he/she will only get 20% of the amount and the remaining will still be invested. There are 2 tiers in NPS i.e. tier 1 and tier 2, each having specific benefits. The returns however in the product aren’t guaranteed, which makes it riskier, although the expected returns should be within 8-10 %.
4) NSC
The National Savings Certificate is also another common tax saving instrument. NSC has a lock-in of 5 years and provides nominal interest of approximately 8 %. The returns, however, are guaranteed and hence risk-free. The returns that are accrued are reinvested and qualify for tax rebate under section 80/c.
5) F.D.
Fixed Deposit has been the “go to” product for most investors, as it is the most easily accessible and convenient product. However, to attain any tax benefit from the product, it needs to be invested for a period of minimum 5 years. The returns are guaranteed at prevailing bank F.D. rates, which like PPF have seen a disappointing decline in recent years and currently lies in the range of 7-9 %. The interest earned although taxable is only applicable if the interest for the year exceeds 10000 Rs.
6) ULIP
Unit Linked Insurance Plans, to put in simple terms, is a mixture of insurance and mutual funds, wherein a proportion of the premium is invested into a fund, which would provide your units at the applicable NAV at the time of investment. The product also provides you with a life cover in proportion to the annual premium chosen. The returns, however, aren’t fixed as the investment has a market-related risk, which can be altered as per the choice of the investor, by choosing either a conservative plan or a plan with moderate to high risk. The expected returns could range from 8-12 % depending on the plan selected. The tenure is a minimum of 5 years.
7) Sukanya Samridi
The returns of the product are comparatively higher than other risk-free deposits. The average returns would be around 8.6%, with a lock-in of 21 years. Premature withdrawals are allowed up to 50% of the preceding year’s balance. The account would need to be opened in the name of the minor girl child, who can decide, after the maturity period of 21 years, if she does wish to close the account, can do so and the account would provide the returns as prevalent then. The biggest advantage of the product is that the interest, as well as the amount at maturity, is tax-free.
8) SCSS
SCSS (Senior Citizens’ Saving Scheme) has everything that a senior citizen investor can ask for: assured returns, the safety of capital and regular payouts. The Senior Citizens’ Saving Scheme (SCSS) also offers Tax benefits under Sec 80C. Further, it also allows premature withdrawals.
The minimum age at entry is 60 years. But this can be relaxed to 55 years, in case one has opted for voluntary retirement. However, it is important to note that VRS takers must open the account within a month of receiving their retirement benefits. The rate for the current financial year is 9.3%. The plus point is that the scheme is managed by the government and offers assured returns thereby making it risk-free, but the interest income is totally taxable.
