Post Office Tax Saving Investment Schemes

Post Office Savings Schemes offers

  • Savings Account
  • Recurring Deposit (RD) Account
  • Time Deposit (TD) Account
  • Monthly Income Scheme (MIS) Account
  • Public Provident Fund (PPF) Account
  • National Savings Certificates (NSC)
  • Senior Citizen Savings Scheme (SCSS) Account
  • Kisan Vikas Patra (KVP) and
  • Sukanya Samriddhi Accounts.

Post Office Tax Saving Schemes

Deposits in some post office schemes are eligible for deduction from income under section 80C of Income Tax Act.

5 Years Time Deposits

Investment in post office time deposit for 5 years is eligible for deduction from income under section 80C of IT Act. Minimum amount for open time deposit is ₹200 and in multiple thereof. No maximum limit.

Interest rate for 5 years time deposit is 7.8% from 1.10.2016

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 is 8% per annum from 01.10.2016.

Minimum annual deposit is ₹500 and maximum annual deposit allowed is ₹1.5 lakhs. Investment up to ₹1 lakh is eligible 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.

National Saving Certificates (NSC)

NSC specially designed for government employees, businessmen and other salaried classes who are income tax assesses. There is no maximum limit for investment in NSC. Investment up to ₹100,000.00 is eligible for deduction under section 80C of Income Tax 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.

Kisan Vikas Patra (KVP)

Investment under this scheme is eligible for deduction under section 80C of IT Act. Minimum deposit is ₹1000 and no maximum limit. This certificate is available in denomenation of 1000, 5000, 10,000 and 50,000.

Interest rate is 7.7%

Senior Citizen Savings Scheme (SCSS) Account

An individual of the age 60 or more can open this account with post office. Maturity period of this account is 5 years and interest rate is 8.5% from 01.10.2016.

Deposit under this scheme is eligible for deduction under section 80C of the Income Tax Act.

Best ELSS Tax Saving Mutual Funds to Invest in 2017

Equity Linked Savings Scheme (ELSS) is a diversified equity mutual fund, which is qualified for deduction of ₹ 1, 50,000 under section 80C of the Income Tax Act. ELSS tax saving fund has the shortest lock-in period to compare with other investment products like Public Provident Fund (PPF), National Savings Certificate (NSC). Dividend declared in ELSS funds is tax-free and no tax levied on the long-term capital gains.

You can make a lump-sum or one-time investment in an ELSS fund or using the SIP route.

Best Mutual Funds to Invest in 2017

Best Balanced Mutual Funds for 2017

Start a SIP

A Systematic Investment Plan (SIP) can create wealth by investing small sums of money every month over a period of time. The biggest advantage of a SIP is that the investor doesn’t have to time the market. When an investor times the market, he usually misses out on the rally or enters the market at the wrong time, either the valuations have peaked or the markets are on the verge of declining. Investing every month ensures that one is invested during the highs and the lows.

Moreover, SIPs also have the advantage of compounding, one must start investing at an early age as the longer the investment horizon, bigger the benefits. If you start early, equity funds should constitute 80% of your portfolio as this asset class has been found to be the best bet for growing money over the long term. SIPs can be an ideal way to accumulate money for retirement. After retirement, one can withdraw the money through a systematic withdrawal plan.

Equity investment is a higher risk over the short term. However, for investment periods of three to five years or longer, the risk on equity investments is considerably lower. In fact, when you take inflation into account, it is bank FDs and similar deposits that are suboptimal for the retiree because of inflation.

Like all equity investments, the best way of investing in ELSS funds is through monthly SIPs throughout the year. That’s also the way to avoid any last minute rush. At the beginning of every year, estimate the amount you have left over from the R1.5 lakh limit after statutory deductions, divide it by 12 and start an SIP.

Best ELSS Tax Saving Mutual Funds to Invest in 2017

Here is the list of best 10 ELSS tax saving mutual funds you can invest in 2017

Axis Long Term Equity Fund

Reliance Tax Saver

DSP-BlackRock Tax Saver Fund

Tata India Tax Savings Fund

Birla Sun Life Tax Plan

Birla Sun Life Tax Relief 96

Invesco India Tax Plan

IDBI Equity Advantage Fund

Franklin India Taxshield Fund

HDFC Long Term Advantage Fund

Income Tax Deductions Section 80C to 80U

Section 80C to 80U of the Income Tax Act, 1961 provides provisions for tax deductions from your gross total income. You can claim deductions for amounts spent in tuition fees, medical expenses and donations. Also, you can invest in various schemes such as ELSS, national savings schemes, PPF, bank deposits etc. to get tax deductions.

Income Tax Deductions Under Section 80C to 80U

SectionsNature of DeductionsLimit

Section 80C

Individual/HUF

Life insurance premium payment.

Investment in PPF.

Employee’s contributions to EPF, Recognized PF and approved Superannuation Fund.

National Saving Certificates (VIII Issue).

Sum paid to purchase deferred annuity.

Children’s Tuition Fee.

Principal repayment of home loan.

Investment in Sukanya Samridhi Account.

Equity Linked Savings Scheme (ELSS).

Unit Linked Insurance Plan (ULIP).

Five Year Deposit Scheme.

Subscription to notified securities/notified deposit scheme.

Contribution to notified deposit scheme or notified pension fund by National Housing Bank.

Contribution to notified annuity plan of LIC.

Contribution to notified pension fund set by a mutual fund or UTI.

Subscription to notified bonds issued by the NABARD.

Deposits in Senior Citizen Savings Scheme.

Subscription to equity shares or debentures forming part of any approved eligible issue of capital made by a public company or public financial institutions.

 ₹150,000.00

 Section 80CCC

Individual

Contribution to certain pension funds of LIC or any other insurer for the pension from a fund referred to in section 10(23AAB).
 Section 80CCD

Individual

 Contribution to NPS up to 10% of salary.

Section 80CCF

Individual/HUF

 Subscription to notified long-term infrastructure bonds. ₹20,000.00
 Section 80CCG

New retail investors

 Rajiv Gandhi Equity Scheme for investments in Equities. Lower of – 50 of amount invested or ₹25,000.00

 Section 80D

Individual/HUF

Medical Insurance – Self, spouse, children.

Medical Insurance – Parents more than 60 years old.

 ₹25,000.00

₹30,000.00

 Section 80DD

Individual/HUF

Medical treatment for handicapped dependent or payment to specified scheme for maintenance of handicapped dependent.

Disability is 40% or more but less than 80 %.

Disability is 80% or more.

 

 

₹75,000.00

₹1,25,000.00

 Section 80DDB

Individual/HUF

Medical expense on self or dependent for diseases specified in Rule 11DD. Maximum deduction is ₹40,000 (60,000 for senior citizen and ₹80,000 for very senior citizen)

 Section 80E

Individual

Interest on education loan for higher studies. This loan may have been taken for the taxpayer, spouse or children or for a student for whom the taxpayer as a legal guardian.

Maximum period: 8 years.

 Section 80G

All assessees

Donations to certain approved funds, trusts, charitable institutions.100%/50% of amount paid

 Section 80GG

Individual

Deduction for house rent paid where HRA is not received.

Deduction available is the minimum of rent paid minus 10% of total income, ₹5000.00 per month or 25% of the total income.

₹60,000.00

Section 80GGA

 All assessees

Donation for scientific research and rural development by any assessee not having income chargeable under the head ‘Profits and gains of business or profession’.
Section 80GGB

Indian Companies

Contributions are given by companies to political parties.
Section 80GGC

All assessees

Contributions are given by any person to political parties.
 Section 80-IA

All assessees

Profits and gains from undertakings or enterprises engaged in infrastructure development, etc.
Section 80-IAB

All assessees

Profits and gains from an undertaking or enterprise engaged in the development of Special Economic Zone (SEZ).
 Section 80-IB

All assessees

Profits and gains from certain industrial undertakings other than infrastructure development undertakings.
Section 80-IC

All assessees

Profits and gains from an undertaking or enterprise in special category States.
Section 80-ID

All assessees

Profits and gains from business of hotels and convention centres in specified areas.
Section 80-IE

All assessees

Deductions in respect of certain undertakings in the North Eastern States.
Section  80JJA

All assessees

Dedeuctions in respect of profits and gains from business of collecting and processing of bio-degradable waste.
Section 80JJAA

All assessees

Deductions in respect of the employment of new workmen.
Section 80LA

All assessees

Certain income of Offshore Banking Units and International Financial Services Centre
Section 80P

Co- operative Societies

Certain specified income of a Co- operative Societies.
Section 80QQB

Individual

Royalty income of author of a certain specified category of books.₹3,00,000.00
Section 80RRB

Individual

Deduction in respect of royalty on patents.₹3,00,000.00
Section 80TTA

Individual/HUF

Interest on deposits in savings bank account.₹10,000.00
Section 80U

Individual

Self suffering from a disability.

An individual suffering from a physical disability (including blindness) or mental retardation.

An individual suffering from severe disability.

 

₹75,000.00

₹1,25,000.00

 

Form 15G and Form 15H to Save TDS on Interest Income

Form 15G and Form 15H are self-declaration forms required to be furnished by the assessee to the bank. Bank will deduct TDS when the interest income is more than ₹10,000.00 in a year. You can submit Form 15G or Form 15G to avoid TDS on interest if you fulfil some conditions.

The TDS rate for interest income is 10%. If you do not furnish PAN details, the TDS rate will be higher @20%.

Form 15G is for assessee other than senior citizen while form 15H is for senior citizens

Form 15G

These forms are valid for one financial year. therefore do check whether you satisfy the conditions for filling them each year and submit them at the start of each financial year.

Conditions you must fulfil to submit Form 15G:

  • You are an Individual or HUF
  • You must be a resident Indian
  • You should be less than 60 years old
  • The total interest income for the year is less than the minimum exemption limit of that year, which is Rs 2,50,000 for a financial year.

Conditions you must fulfil to submit Form 15H:

  • You are an individual
  • You must be a Resident Indian
  • You are 60 years old or will be 60 years old during the year for which you are submitting the form
  • Tax calculated on your Total Income is nil

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Submit Form 15G and Form 15H

The Ministry of Finance has amended the income tax rules for the submission of Form 15G and 15H on 29th September 2015 through a notification. These rules have been referred to as Income Tax (14th Amendment) Rules, 2015 and are applicable from 1st October 2015. These rules allow the taxpayer to submit the forms in any of the following modes.

  • Paper Form
  • Electronically after duly verifying through an electronic process in accordance with the procedures, formats, and specified standards.

Start Your Tax Planning Early

Tax Planning

We often make the mistake of investing at the last hour when our company asks for proof. Don’t delay it, start tax planning now. Early tax planning will also ensure that you fully acknowledge and understand your financial situation, which can help you plan for the future in more ways than just tax preparation.

Start in April

Why should you wait for the end of the year to invest in tax saving investments? April is the best time to start investments. Delayed tax planning could make you invest a large sum in March. You might end up not investing in financial instruments as per your goals. So don’t leave your tax planning for the last minute.

Understand Tax Changes & Deductions

By April, the Union Budget would have been announced. This means you have a good idea about any tax changes, exceptions and deductions etc in the new financial year.

Estimate Your Taxes

You also know about your salary hikes and tentative incomes by the start of your financial year. This is enough to calculate your tax payments too.

Tax Planning

Spread Out Investments

Section 80C offers taxpayers a ceiling of ₹1.5 lakh for claiming tax benefits. This number – ₹1.5 lakh is important and tells you how much money you can save depending on your tax bracket. It is your starting point and you must work backwards by selecting from the options 80C offers you like tax-saving mutual funds (ELSS), EPF, PPF, among others.

If you invest at the end of the year, you will have to shell out ₹1.5 lakh or more in a single lump sum payment. By planning earlier, you can avoid this

Systematic Investment Plan (SIP)

Equity Linked Savings Schemes (ELSS) are special Mutual Funds for saving tax. You can start SIP in ELSS right in April. This spreads out your investments. By investing every month, you can also benefit from the volatility in the stock markets. You can lower your average cost of investment by investing every month.

Higher Returns

By lowering your average cost of investment, you can increase your overall returns in the long run. This way, your tax-related investments can help create more wealth.

Best 5 Tax Saving Investments

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.

Deduction 80D: Tax Benefits on Health Insurance

Health insurance policy not only gives insurance cover to a taxpayer but also provides certain tax benefits. Health insurance or Medi-claim policy is a must for all because should you fall sick or meet with an accident, your medical bills could wipe out your savings.

The premium paid towards medical insurance is tax deductible under section 80D of the Income Tax Act 1961.

As per section 80D, an individual or an HUF can claim deduction in respect of the following payments:

  • Medical insurance premium paid by the assessee, being an individual/HUF by any mode other than cash.
  • Any contribution made by the assessee, being individual to Central Government Health Scheme or such other Scheme as may be notified by the Central Government.
  • The sum paid by the assessee, being individual on account of preventive health check-up. Medical expenditure incurred by the assessee, being individual/HUF on the health of a very senior citizen person provided that no amount has been paid to effect or to keep in force an insurance on the health of such person.

An Individual can claim tax deductions in respect of medical insurance policy taken:-

  • in his own name, or
  • in the name his/her spouse,
  • his/her parents and
  • his/her dependent children.

In a case of HUF, the policy can be taken on the health of any member of such HUF.

Deduction on account of medical expenditure shall be allowed only when it is incurred on the health of the aforementioned persons who are very senior citizens.

Very senior citizen’ means an individual resident in India who is of the age of eighty years or more at any time during the relevant previous year.

Tax Deduction of Health Insurance Premium

Health Insurance premium paid for self, spouse or dependent children is tax deductible up to ₹25,000.00. If any one of the persons specified is a senior citizen and health insurance premium is paid for such senior citizen then the deduction amount is ₹30,000.00. Health insurance premium paid for parents is deductible up to ₹25,000.00. If parents are senior citizens, the maximum allowable deduction is ₹30,000.00. Below table shows tax deductions applicable to health insurance.

Health Insurance

 Preventive Health Checkup

The total amount of deduction for the expenditure incurred on preventive health checkup of the assessee, his family and parents could not exceed ₹5,000.00. Remember, this is not over and above the individual limits as explained above.

ELSS – Save Tax & Earn Higher Return

ELSS – Equity Linked Savings Scheme is a diversified equity mutual fund which has a 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.

Like other mutual funds, Equity Linked Savings Scheme has both growth and dividend options. In growth option, investors get a lump sum on the expiry. On the other hand, investors get a regular dividend income in dividend option.

The investor can claim up to ₹1 lakh as a deduction from his gross taxable income under section 80C of the Income Tax Act. ELSS fall under the exempt – exempt – exempt (EEE) category. That means investments get tax deduction under section 80C. The capital gains generated by the fund are exempt from tax. Finally, withdrawals are also tax-free.

ELSS

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The primary purpose of Equity Linked Saving Scheme investment should be to achieve a future financial goal or to create long-term wealth for distant goals like retirement planning etc. and tax saving in the year of investment should be an incidental benefit or a secondary objective. This mutual fund is preferred to open-ended Equity Schemes because of two reasons, namely tax saving and discipline of holding for a longer period.

Advantages of ELSS over other tax Saving Instruments

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 a long-term.

Best ELSS Funds

Following are the best ELSS funds:-

  • Axis Long Term Equity Funds.
  • Birla Sun Life Tax Relief 96.
  • Birla Sun Life Tax Plan.
  • Reliance Tax Saver.
  • Religare Invesco Tax Plan.
  • BNP Paribas Long Term Equity Fund.
  • Franklin India Taxshield Fund.
  • ICICI Prudential Long Term Equity (Tax Saving).
  • DSP BlackRock Tax Saver Fund.
  • IDFC Tax Advantage (ELSS) Fund.