1- Public Provident Fund U/s 80C
Public Provident Fund is my topmost tax saving option. It gives you full tax saving with maximum safety. There is a lot of flexibility and ease also. Anyone can invest in this. Almost every big bank offers this facility.
Tax Saving
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Lock-In Period
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PPF investment is for 15 years. Normally you can’t redeem it before that.
You can take loan before 5 years and withdraw it partially after 5 years
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Investment Limit
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You have to invest minimum 500 annually.
Maximum investment limit is 1,50,000 annually
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Safety
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This is one of the safest investment options. Banks process it and money remains with the government of India
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Interest
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rate varies with the market rate. 10 Year government Bond yield is the benchmark. hence it will never underperform .
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Where to Invest
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State bank of India and all big National and private Banks give this facility.
Now you can open PPF account online also. Even Post office also gives this facility.
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Recurring Investment
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It is not mandatory to invest fixed amount every year, unlike insurance schemes. You can invest any amount. You can invest once a year or up to 12 times a year.
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Employees get the benefit of EPF which gives them retirement saving with the tax benefit. For professional and self-employed PPF plays this role. Return and conditions of PPF withdrawal are same as EPF. But in PPF you get much more flexibility. You can invest in PPF up to the limit of 80C investments.
Note – PPF starts calculating 15 years from next April. It means that if you start investing since Dec 2013, your PPF account will mature in April 2029. But if you invest during 1 – 5 April your account would be considered from the same financial year. Also, put your money before 5 of every month to get the interest of that month.
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2- Employee Provident Fund U/s 80C
Organised sector employee must be aware of this tax saving investment. It is mandatory for employers to deduct 12% of the employee salary towards employee provident fund (EPF). The employer also contributes the same amount. This investment is qualified for a tax deduction. Fewer people know that you can invest more than the prescribed 12%. This excess amount also gets a tax benefit. The EPF can be transferred from one job to another easily. After leaving the job you can withdraw EPF.
Tax Saving
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Lock-In Period
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Money is locked till your retirement.
If you remain unemployed for 2 months then you can withdraw your whole amount.
Withdrawing money before 5 years would be taxable
You can withdraw partially in special situations.
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Investment Limit
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You get tax benefit till 80C limit. You can invest more than the prescribed 12% of the salary. Excess amount will also get the tax benefit.
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Safety
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This is one of the safest investment options. Money remains with the government of India
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Interest
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EPFO determines Interest rate every year according to its return. EPFOinvest mainly in government bonds.
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How to Invest
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Your employer deducts it regularly. For excess deduction, you can say to your employer in the beginning of the financial year.
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Recurring Investment
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There is no flexibility. EPF portion always remains 12% of your salary. Also Once you decide for excess deduction it will remain there until the end of financial year.
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3- Equity Linked Saving Scheme (ELSS) U/s 80C
Equity Linked Saving Scheme (ELSS) has a minimum lock-in period. Your money is locked only for three years. But you should not always exit from it after three years. Equity investments give good return in a longer period. You can even rotate your investment after three years. Because of this, you will be spared of fresh investment for tax saving after the three years. Also, If you need some money before three years then choose the dividend option. It will give tax-free dividend as well. SIP would be the perfect way to invest in these funds. It averages the ups and downs of the market. You can invest more than the 80C limit in the ELSS.
Tax Saving
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Lock-In Period
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This option has the smallest lock-in period. After 3 years you can redeem your money.
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Investment Limit
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You can invest any amount, but tax benefit is limited to 80C rules. (Upper limit for 80C tax rebate is 1 lakh total)
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Safety
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It is as risky as any diversified equity mutual fund. As all of your money is invested in share market yo can experience the roller coaster ride.
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Return
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Traditionally, long-term Equities give a better return than any other investment. But it may happen that after the completion of 3-year lock-in period your money gets depleted.
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How to Invest
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Many fund houses have the ELSS. You can Invest online directly through the Fund house’s own website or through the distributors such as FundsIndia.
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Recurring Investment
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There is no limitation for recurring investment. But fixed SIP would be suitable to overcome the market’s up and down.
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4- National Pension System (NPS) U/s 80C
- National Pension System (NPS) is not much popular tax saving investment. But it gives you a happy retirement life as well as tax saving. You can claim investment in the NPS for tax deduction under the 80C. But it has a big drawback also. The government did not make maturity proceedings tax free.
- You will get money only after the retirement.
- From the 60% of the maturity amount you have to take annuity policy.
- Rules are somewhat stiff but it is designed to give you happier retirement life. The government has added some flexibility, which has made it more attractive. You can read in details about it here
Pension Bill – Changes in National Pension System and Benefits to You
Tax Saving
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Lock-In Period
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Money is locked till your retirement. You can withdraw 25% in special circumstances with some conditions .
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Investment Limit
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Tax saving under 80C rule . You can claim the tax deduction up to 10% of your salary which should not be more than 80C limit . However, can invest more but it will not get tax saving.
Your employer can contribute more on his behalf in your account. This contribution will be tax-free over and above the 80C limit.
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Safety
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Money is invested in fixed instrument as well as in shares. You have to choose where you want to invest. Equity investment can not be more than 50% of the fund. Also, there is life cycle fund which automatically changes your asset allocation with age.
Now government also gives the minimum guarantee of the return. You can take that option also.
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Return
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You can expect the market return of fixed investment. If you are investing more in equity then you should be ready for ups and down. But don’t worry for a longer period it will certainly give a good return.
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How to Invest
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Government Employees now invest their money in this scheme by default. Private company employee and the unorganized worker can subscribe this scheme from the ‘point of presence’. These are the distributor of National Pension System. most of them are banks while some are financial companies.
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Recurring Investment
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You have to invest minimum 6000 in a year else you will be fined for 100 rupees per year. No contribution can be less than 500 rupees.
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5- Tax Saving Fixed Deposit U/s 80C
The Tax saving Fixed Deposit are just like any other fixed deposit. You will get similar interest rate also. But your money will be locked for 5 years. You can’t withdraw your money before maturity. Also, Interest-earning would be taxable. Ease and peace of mind are the biggest plus point of this tax saving investment.
6- Term Insurance U/s 80C
Term Insurance does not give you ant maturity amount . You can save tax and have a big peace of mind. This gives life cover so that our family would not suffer in distress if there is any eventuality with us. These days online term plans are cheaper and you can have 1 crore term plan in 10-15 thousand annually. HDFC Life, Birla SunLife gives these online term plans.
7- National Saving Certificate U/s 80C
National saving certificates (NSC) are similar to Tax Saving Fixed Deposit. But today it gives less return than Bank Fixed Deposit. Also now finding post office is difficult than banks. But NSC should be considered safer than FD since your money remains with the government of India.
- NSC also gives the benefit of tax saving under 80C. Unlike ELSS, PPF or EPF interest is taxable in case of NSC. There is one extra tax benefit with NSC. As your interest is considered accrued every year. But it stays invested so you can claim this interest also for the tax deduction.
- There is no maximum limit of investment.
- Rate if Interest if 8.50% for 5 years and 8.80% for 10 years.
- You can take a loan from banks also using this certificate as collateral.
8- Senior Citizens Saving Scheme U/s 80C
Senior Citizen Saving Scheme is designed for elderly and it is one of the best tax saving scheme for them. Even the senior citizen who don’t need tax saving can also invest in this scheme. It gives them a regular income as interest is deposited regularly in their account.
- Tax Saving is under the 80C Scheme.
- Interest is taxable. But as many Senior citizens earn less than their limit of tax so this should not be any hindrance.
- This Scheme is for 5 years but one can withdraw the amount with some conditions.
- The maximum limit for this account is 15 Lakhs.
- The minimum limit is 1000.
- Interest Rate is 9.2% compounded quarterly. Interest is credited in an account on 31 March, 30 June, 30 September and 31 December irrespective of your date of deposit.
- It is very safe as your money remains with Government of India.
9- Unit Linked Insurance Products (ULIP)U/s 80C
Unit Linked Insurance Products give you insurance cover as well as investment. ULIPs invest some amount of your money in shares. You can decide which proportion of your fund should be invested in shares. ULIP has some positives but many negatives also.
Positives
- ULIPs are very tax efficient. You can save tax from investment under 80C. While maturity amount would not be taxed also.
- It forces you for regular saving.
- You are forced to have some insurance cover if you don’t have one.
- You can continuously change asset allocation
Negatives
- You can’t withdraw your money before 5 years.
- You remain under-insured because the cover is only 10-20 times of the premium.
- ULIPs are somewhat opaque. While Mutual funds are analysed and compared by many research agencies. less information is available about ULIPs.
- Initially, charges are higher than a normal Mutual fund.
- If there is an underperformance for a long period you can’t switch another funds house. The maximum you can do is allocate more fund to another category. Suppose you chose equity option for building the wealth. But equity fund is underperforming than the benchmark. Then you will not have the option to switch over to another equity fund. You can only switch to balanced or debt fund, Which might also give the lesser return.
10- Health Insurance U/s 80D
The best part is that it gives tax saving benefit also. The premium you pay for health insurance is tax-deductible under Section 80(D). You can get tax saving up to 55,000 of expense in health insurance and health check up for below 60 years Rs.25 thousand and Parents who have above 60 Years can avail Rs.30 thousand.
- You can avail tax deduction on the expense of health insurance for you and family. The limit for tax deduction is 25,000.
- You can additionally avail tax deduction for your parent's health insurance. The limit is 30,000 for the senior citizen.
- Health checkup for you and family is also tax-free. The limit is 5,000 annually.