Tax saving is one of the important part in financial planning. In today’s time, earning is not sufficient. One has to plan their investment as well. Also, financial year is about to begun and both the salaried and non – salaried taxpayers would compare tax saving investment options.
In India there are lot of investment options are available to choose from. Some of them are traditional as well as new investments options that have become popular in recent years.
In this article, we have listed out some tax savings investments with tax exempt returns as well. And all the tax saving schemes differs in terms of features and asset – class. Hence, it is important to them before making a choice.
Equity Linked Savings Schemes or ELSS is offered by Mutual Fund of India. It is also a tax benefit scheme under section 80 C of the Income Tax Act 1961. The lock in period or minimum maturity period is three years. The minimum investment is Rs 500. However, there is no upper limit on the maximum investment; tax is exempted only up to 1.5 lakhs per year.
The returns in ELSS depend on the performance of equity markets and also they are neither fixed nor assured.
There are two options for investing into ELSS; they are the Systematic Investment Plan (SIP) and the Lum Sum Investment Plan.
Public Provident Fund (PPF)
PPF or Public Provident Fund is a government backed scheme, which a tax is saving scheme floated under the PPF Act 1968 by the Central Government. This scheme is considered to be one of the safest investment product launched by the Indian Government. The main aim of Public Provident Fund or PPF is to encourage savings amongst the Indians and encourage them to create a retirement corpus.
The Reserve Bank of India specifies the rate of interest from time to time that is applicable to the PPF account. It is the Central Government who sets and announces the latest PPF Interest Rates. The current rate of interest of the PPF for the year 2017 – 18 is 7.9%.
There are various benefits of PPF such as it serves as a long – term investment option. As they offer a deposit period of 15 years and a lock – in – period of 7 years. And this scheme is quite beneficial for a retirement individual, as it provides long – term tenures, compounded and tax – free returns and capital protection make it perfect for building a retirement corpus.
Certain eligibility criteria’s has been fixed for PPF such as PPF accounts should be opened one account per person. The nationality of the individuals should be Indian. They should have attained an age of 18 years at least. There is no upper limit for opening this account.
Employees’ Provident Fund (EPF)
The Employees’ Provident Fund Scheme also known as the Employees’ Provident Fund and Miscellaneous Act 1952 is backed by the purview of the Government through the Ministry of Labour and Employment.
The main motive behind this scheme is to promote retirement savings for employees across India. The EPF is a corpus of funds that is built on a regular, monthly, contribution made by an employee and his / her employer. EPF is nothing but the balance deducted every month from your salary along with an amount that is contributed to your EPF Account by your employer. Opening an EPF account is considered to be a good idea for retirement savings.
In EPF the amount which is contributed to the fund is based on a fixed rate. An employee earns interest on their EPF balances. Both the interest earned and the total amounts withdrawn at maturity are tax – free, making this one of the most popular forms of long – term retirement savings among the working population in India.
There are various benefits of Employees’ Provident Fund (EPF) as well, which are as follows:
- The interest earned on funds held in an EPF account is tax – free
- Also in this account, savings is ensured as funds in the account are not easy to withdraw
- At the end the amount saved would provide financial security at the time of retirement. However, premature withdrawal are allowed in certain exceptional cases
- This is a sound savings option for employees with long – term investment goals
Certain eligibility criteria have been fixed for the scheme such as employees are eligible for membership on the day of joining an establishment. This includes eligibility for provident funds, insurance and pension. Establishments with 20 or more employees have to provide PF to their employees. The act does not apply to the State of Jammu and Kashmir.
ULIP or Unit Linked Insurance Plan is the market – linked products that offer the best investments schemes and programs provided by Insurance Companies. Unlike the other insurance policy programs, this insurance plan gives investors both insurance and investment under a single integrated plan. This plan is linked to the capital market and provides flexibility to invest in the equity or the debt funds. These products provide a risk cover for the policy holder along with the investment options to invest in any number of qualified investments such as stocks, bonds or mutual funds.
The aim of the Unit Linked Insurance Plan (ULIP) is to provide investment to those who are seeking to invest in an investment cum insurance product.
There are various types of ULIP such as:
- ULIP for Retirement
- ULIPs for wealth collection
- ULIPs for children education
- ULIPs for health benefits
Sukanya Samriddhi Yojana (SSY)
Sukanya Samriddhi Yojana (SSY) is backed by the government which is launched by the Prime Minister of India. SSY is a small deposit scheme which is specially meant for the “Girl Child”. It is a part of “Beti Bachao, Beti Padhao” campaign.
The aim of the SSY is to provide a better future for the girl child in India. This scheme will provide support to the girl child from the education to the marriage of a girl. This scheme focuses on the benefits in the field of education, hygiene, and security.
|Equity – Linked Savings Schemes
|Public Provident Fund (PPF)
|Employees’ Provident Fund (EPF)
|Unit Linked Insurance Plan (ULIP)
|Sukanya Samriddhi Yojana (SSY)
|Investment||ELSS is a type of mutual fund scheme where most of the fund corpus is invested in equities or equity – related products||Pension mutual funds invest 40% of the money in equity and 60% in debt instruments.||EPF is a long term investment tool by investing in it one can secure their retirement days||ULIP is basically a fund operated investment tools in which charges are deducted for operational matters and rest goes as investment in various funds||One requires to invest in the scheme before 10th of every month, as the amount deposited after the 10th will not earn any interest|
|Returns||Not fixed. It depends on the performance of equity market. However, in the past, ELSS has given average returns of 12% – 14%||The returns in pension mutual funds are not fixed as it depends on the performance of the equity and debt market. Pension mutual funds have given an average return of 8% – 10% for a5 year and 10 year period||These are secured and steady instruments of investments and they provide guaranteed returns on your savings||The average category return of small and midcap ULIP funds is 16%, which is only slightly lower compared to their mutual fund counterparts||At present, it is 8.1 per cent and provides income – tax benefit|
|Lock – in – period||3 years||Until you reach the age of 58||5 years||5 years||Sukanya Samriddhi Yojana matures when the girl child, who is the account holder of the account, turns 21 years|
|Risk – factor||Risky investment||Risk – free investment||Risky investment||Risky investment||Zero risk factor|
|Online option||Online option for starting ELSS is available||One can invest in PPF online||One can invest in EPF online||One can invest in ULIP online||You can open Sukanya Samriddhi Account either in post office or any other commercialized banks|
|Liquidity||One can withdraw money from ELSS anytime after 3 years||One cannot withdraw the funds before retirement. The standard retirement age is taken as 58 years||Withdrawals after completion of 5 years of continuous service in the EPF are tax – free. However, withdrawals made before completion of 5 years of continuous service are subject to tax||There is no fixed amount that you can withdraw. However it varies across insurers and policies||The Sukanya Samriddhi account holder can withdraw up to 50% of the total savings for fulfilling the purpose of marriage or higher education of his / her girl child. It allows partial withdrawal only after the girl reaches the age of 18 years.|