The financial year is reaching its end. The season for investments in tax saving instruments has started.The time has come to part your hard earned money to the tax saving investments (Ha Ha Ha).So what are you planning to invest your hard earned money into? We have made ready for your reference an article titled “Eight ways To Invest To Save Taxes”
Many people will rush into the first investment option told to them and will invest their money.Many would have already planned their investments and would be in the state of calmness.
We have listed many of the options in tax investments for individuals in the article “Eight ways To Invest To Save Taxes” .So, if you have not yet invested into any of them yet, you may take a look at the below mentioned avenues of investments.These are not financial advise but a normal opinion and information about the commonly available great investment options.
Investments Under Section 80 C:
Under section 80 C , Government of India has listed provisions for a hundred percent tax rebate up to rupees one lakh and fifty thousand only. The main purpose of this type of provision is to promote savings and investments in the Indian household. Several instruments have been included like NPS, ELSS , ULIP etc where investments are made in stock market.Insurance products have been included to provide a monetary benefit in case of a casualty or damage. PPF has been included as a secure saving product. ULIP has a balance of insurance and stock market investments.
Public Provident Fund (PPF): PPF scheme is a small saving scheme started by National Saving Organisation, Ministry Of Finance. The scheme involves a nice return on investment, decided by government, along with benefit of tax saving up to the ceiling limit.Eligibility for opening an account is that any individual can open a ppf account in their own name as well as in the name of a minor.As of now, you can deposit a maximum of Rupees one lakhs and fifty thousand in a financial year.
Minimum amount required for keeping the account active is rupees five hundred only in a financial year.You can deposit this sum in twelve different deposits transactions or a single transaction in a financial year. People who become NRIs, can also continue to hold ppf accounts. Nomination is available and the ppf account can also be transferred to different branches or different banks or post office. You have to continue the ppf account for a minimum of fifteen years with an option to renew for a period of five years again.
Life Insurance In ” Eight ways To Invest To Save Taxes”: The other investment instrument is a life insurance policy. Life insurance can be a lucrative investment option as it provides life risk coverage as well as tax benefit. Everyone has a different requirement and expectation regarding an investment into insurance. But as per my recommendation, a term plan is better for coverage of risk. The main purpose of a term plan is to cover all the expenses and liabilities on that person.
So, calculate your total liability and the total expenses that may be required to take care of the family for the entire life time. Then pay the premium for the suitable policy and search for other avenues of investment. Endowment insurance as an investment is not a good investment (my personal opinion) as you will have to pay a higher premium for the same level of coverage.Here also the total available investment for tax benefit is rupees one lakh and fifty thousand only (at the time of writing).
Tax Saving Deposits In “Eight ways To Invest To Save Taxes”:Tax saving deposits are the next available option in investment for tax benefit under section 80 C. These investments are available with banks and post offices across the country and are considered the safest investments after public provident fund. These deposits come with a lock in period. You can’t withdraw or break it before its maturity date. Most of them have a maturity period of sixty months. So naturally , the lock in period is equal to the maturity date.You can’t take any loan against these deposits and it can’t be made in joint name.
Nomination facility is available though. One thing to remember is that tax is debited on interest earned upon these deposits also, subject to certain conditions. Anyone going for a diversification, can go for these investments. Senior citizens have been given an additional benefit of half a percent extra benefit in terms of interest. Plus this amount is never going to be invested in stock market. Hence, it is also a safe investment.So , go ahead and have a tax saving deposit in one of the banks or in one of the post offices in India.
Pension Plans In “Eight ways To Invest To Save Taxes”: Under section 80CCC of income tax, pension plans have been introduced and benefit of tax benefit has been given to everyone. Government , in order to secure the post retirement life of common citizens, government has introduced this investment option. With increase in life expectancy and increase in income of individuals, the expenses of living has also increased. Many people , who are not involved in organised sector, can also take advantage of the pension.
These funds are generally invested in high rated equity and debt securities etc. You can purchase a monthly investment option or a lump sum investment option. After attaining the age of sixty years , you can have a regular pension and can also withdraw a certain percentage of the amount. Here, please remember that the amount is mostly invested in stock market.So, it carries a risk factor. Although it is very specific that a very high level of vigilance is kept on these companies by the government bodies.
National Pension System: National Pension System or NPS is a type of pension plan introduced by the Government of India. After 2004, most of the central government employees are covered by this pension plan. From 2009, NPS was available to general public.From 2010, all the public sector banks have covered their employees under this pension plan.It is considered as the cheapest pension plan available with respect to management fee.
At present there are eight pension fund manager companies. They are:
- ICICI Pension Fund Management Company Limited
- Kotak Mahindra Pension Fund Limited
- LIC Pension Fund Limited
- Reliance Capital Pension Fund Limited
- SBI Pension Funds Private Limited
- UTI Retirement Solutions Limited
- Birla Sun Life Pension Management
A subscriber has option to choose between the pension fund managers as per his will. A corporate or company can dictate its own will regarding the choice of pension fund manager, if they are contributing the matching contribution up to certain amount.Two choices are available: Active choice and Auto choice. Both of them deals with the quantum and system of investment of your money in the certain asset classes.You get a kit and a card named PRAN card. Your pran number is available on it.
ELSS: It stands for Equity Linked Saving Scheme. It has been announced by Government of India to provide tax benefit to the investors. It is a mutual fund that is mainly invested in equity market , thereby giving a higher return on investment.There was no tax on it earlier, but as per the recent budget changes , there is going to be a tax on its earnings.Its lock in period is for three years. Probably the lowest lock in period available at this time.
Although you can claim tax benefit for investment up to rupees one lakh and fifty thousand, you can invest without any limitation in this mutual fund. This mutual fund scheme has been designed to provide higher return on investment so as to earn more than what inflation eats up.Like other mutual funds, it can also be invested in a lump sum or in monthly systematic investment plan.But like other mutual funds, it is primarily going to be invested in equity market. Thus, it has a risk factor attached to it.
Unit Linked Insurance Plan: Unit Linked Insurance Plans or ULIP are the mix of insurance and investments, first launched in India by Unit Trust Of India. It provides a life coverage with a small amount of mortality charges and the rest of the amount goes into stock market for investment. There are several charges also included while collecting the maturity amount. Tax benefit up to rupees one lakh and fifty thousand, as per section 80 C of Income tax extended in case of ULIP also. Now a days, after opening up of the insurance sector for private players and setting up of IRDAI, several companies are present in this sector.
Additional Investments Other Than Under 80 C:
Health Insurance: Under section 80D of income tax act, government has provided benefits of upto Rupees twenty five thousands only for investments in premium payment of a health insurance scheme over and above the existing limit of rupees one lakh and fifty thousand only. There are several health insurance companies present in India and worldwide with great services available.
Premium paid for health insurance of self, spouse, dependent children and parents are accepted for tax deduction.Earlier, the permitted deduction was up to rupees fifteen thousand only. Since 2016,it has been revised to the above mentioned amount.
Additional Investments In NPS: The government has provided an additional benefit of rupees fifty thousand only every year when an individual makes a self contribution to the NPS account.This benefit is over and above the existing limit of rupees one lakh and fifty thousand only.
The finance act 2015 has modified and added a sub section 1B under section 80 CCD of Income Tax Act so as to propel the growth in NPS investments.There is a factor of confusion over the process of claiming benefit (among the tax experts). We expect the clarifications in the near future regarding this benefit.
Benefits Of Investing In “Eight ways To Invest To Save Taxes”:
With all these lists and investment vehicles mentioned on this page, have you ever though of the reason for providing these options by the government. Or is it that the government was very happy over some thing and came up with the idea of doing some thing new. As a result, these rules were made. It is certainly not the truth.
Government provides investment options to promote savings and investment options among the citizens. Government wants its citizens’ life covered and so, they provided a life insurance benefit. For the promotion of savings, they included the Public Provident Funds and Tax saving deposits.
Likewise , for investment in equity market and wealth creation, they included ELSS . ELSS helps earn money by beating inflation.Pension funds were included to secure the after retirement lifestyle of the citizens.
With increase in life expectancy of humans, the expenses related to health has also increased. In order to secure the health of individuals , government has included the health insurance benefits.It is a must in today’s world. Every person should cover themselves with a health insurance.
These are very important and wonderful measures taken by government in order to promote savings and other vehicles of investments and thereby bringing financial prosperity in lives of people. Further, the investments in these tax saving investments should be properly planned.
Happy Tax Saving Month.