Tax Saving Investments
Investments in tax saving investments can claim deductions under section 80C of income Tax Act 1961. The maximum deduction is allowable under this section is ₹150,000.00. If you are investing in following investments, you can claim deductions from your gross total income.
Public Provident Fund (PPF)
The Public Provident Fund (PPF) is a tax saving investment. PPF was introduced by the Ministry of Finance of India in 1968. Deposits made towards PPF accounts can be claimed as tax deductions and interest earned on those deposits are also tax-free. Withdrawals are exempt from tax. The PPF interest rate for the financial year 2016-17 is 8.1%.
PPF accounts can be opened at any nationalised banks, or post offices. PPF accounts can be opened at the specific private bank as well. The minimum amount required to open a PPF account is ₹100.00. Minimum annual deposit is ₹500.00 and maximum annual deposit allowed is ₹150,000.00. Investment up to ₹100,000.00 qualifies for deduction under section 80C of IT Act.
Tenure of PPF account is 15 years, account continuance is allowed beyond maturity for 5 years at every renewal, with or without making additional deposits.
Loans can be availed against funds held in the PPF account from year 3 to year 6.
Equity Linked Savings Scheme (ELSS)
ELSS– Equity Linked Savings Scheme is one of the best tax saving investments available in the market. ELSS is a diversified equity mutual fund which has the majority of the corpus invested in equities. This type of mutual fund has a lock-in period of 3 years. This means if you start a Systematic Investment Plan (SIP) in an ELSS, then each of your investments will be locked in for three years from the respective investment date.
Compared to other tax saving instruments like bank fixed deposits, Public Provident Fund (PPF) and National Savings Certificate (NSC); the lock-in period of Equity Savings Scheme is much lower. While ELSS investment is locked for 3 years, PPF is locked for 15 years, NSC is locked in 5 years and bank fixed deposits eligible for tax deduction are locked in for 5 years. As ELSS is an investment in equity markets and investing in this for a long-term can give better returns compared to other asset classes over the long term.
National Saving Certificates (NSC)
NSC specially designed for government employees, businessmen and other salaried classes who are income tax assesses. NSC are issued by the post office and can be taken from any branch of the Indian postal service. There is no maximum limit for investment in NSC. Investment up to ₹100,000.00 qualifies for deduction under section 80C of IT Act.
The interest rate for NSC VIII Issue is 8%.
Maturity value of a certificate of ₹100.00 purchased on or after 01.10.2016 shall be ₹146.93 after 5 years.
Maturity value of a certificate of ₹100.00 purchased on or after 01.04.2012 shall be ₹147.61 after 5 years.
Certificates can be kept as collateral security to get the loan from banks.
5 Years Fixed Deposits
You can claim deductions under section 80C of IT Act 1961 by investing in fixed deposits up to ₹150,000.00. Lock-in period for such deposits is 5 years. The interest earned from such deposits are taxable. Premature withdrawal is not available. Deposits can be opened both singly and jointly. In the case of a joint account, the tax benefit will be availed by the first holder of the deposit as per the section 80C of the Income Tax Act, 1961. The interest rate for fixed deposits is very from bank to bank.
Nation Pension Scheme (NPS)
The National Pension Scheme (NPS) was introduced by Government of India on 1st January 2004 with the objective of providing retirement income to all the citizens.
Finance Minister Arun Jaitley in Budget 2015-16 introduced an additional income tax deduction of Rs. 50,000 for contribution to the New Pension Scheme (NPS) under Section 80CCD. NPS is a voluntary pension scheme, which is regulated by the Pension Fund Regulatory and Development Authority.