We spend between eight to ten hours every day toiling away to make sure we earn enough to lead a comfortable life. No one wants to pay more than what is absolutely required as Income Tax. Section 80C in the Indian Income Tax Act enables you to invest up to Rs. 1.5 lakhs and claim tax deduction on them.
Here are 5 of the most popular tax saver options that the government has made available for you:
ELSS or Equity Linked Saving Schemes: This tax-saving mutual fund is currently the forerunner in the 80C investment circuit. As the name suggests, it invests a significant part of its corpus into equities (company shared), inexplicably tying the returns earned to the turbulent equities market.
Eligibility: Resident Indians, HUF and NRIs
Lock-in Period: 3 years
Rate of Return: Market linked/Fund performance
Investment Limit: Minimum investment of Rs 500/ month
Tax Treatment: The LTCG made after 31 March 2018 in excess of Rs 1 lakh is taxable @ 10%.
Tax Saving Fixed Deposit: This is what many call the blue-eyed baby of the Tax Saving sphere. Even today, people opt to invest in Fixed Deposits because of its risk-free nature and assured returns, albeit lower returns.
Eligibility: Resident Indian individuals.
Liquidity: 5 years.
Rate of Interest: 7%-8% per annum
Investment Limit: Minimum investment limit is Rs 100.
Tax Treatment: Interest earned in taxable.
Public Provident Fund (PPF): This scheme was set up by the government in a move to motivate people to save for their retirement. PPFs are as risk-free as Tax Saver FDs and are completely tax-free. Its 15-year lock-in period could be detrimental for individuals who prefer having financial liquidity.,
Eligibility: Resident Indian individuals
Liquidity: 15 years, but can be further extended by 5 years.
Rate of Interest: 8.0% per annum
Investment Limit: Minimum and maximum investment limit is Rs 500 and Rs 1.5 lakh annually respectively.
Tax Treatment: Interest earned is tax-free.
Employee Provident Fund (EPF): EPF is a retirement centred benefit scheme for all salaried individuals. Every year you should contribute 12% of your basic pay to the Employee Provident Fund Organisation and the same amount is deducted from your employer too. EPF enjoys EEE or Exempt-Exempt-Exempt privilege since any contribution is deductible from your income.
Eligibility: All salaried individuals with a salary higher than Rs 15,000 per month
Liquidity: Can be drawn at retirement or after 2 months of leaving current employment.
Rate of Interest: 8.55%. p.a.
Investment Limit: Both employer and employee have to contribute a minimum 12% of basic pay.
Tax Treatment: Entire PF balance (including interest) is tax-free if withdrawn after continuous service of 5 years
National Pension System (NPS): NPS is a pension scheme that the government put into action to ensure that the individuals of the unorganised sector and working professionals have a retirement plan in place.
Which means that the lock-in period of NPS is up to retirement, although you can make a partial withdrawal at the 15-year mark in case of special circumstances.
Eligibility: Every Indian citizen between the age of 18 and 60
Liquidity: After retirement i.e. after the age of 60
Rate of Return: Market linked/Fund performance
Investment Limit: Min Rs.6000 for Tier 1 and Min Rs. 2000 for Tier 2
Tax Treatment: Investment, periodic returns and withdrawal are tax-free.
These are just a few of the popular tax-saving options under Section 80C. These avenues are known for their good returns and security of investment. Nonetheless, which of them you want to invest in will depend entirely on your personal financial goals, risk tolerance and preferences.
