Best Tax Saving Choice
Earn Higher Returns
3 years of Lock-in Period
ELSS
ELSS schemes are tax-saving mutual funds with a lockāin period of 3 years. Along with wealth generation, you can save tax with ELSS mutual fund under Section 80C of IT Act. After the lock-in period, you can either redeem your money or can keep investing for higher return. You can practice systematic investment for a minimum of Rs. 500 per month in ELSS mutual funds. As per your convenience, you can choose the investment options of ELSS tax saving mutual funds namely- growth, dividend and dividend reinvestment option.
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NSC
NSC is National Savings Certificate is a government certificate which you can avail in post office.The lock-in period of NSC is 5 and 10 years. You can invest a minimum amount of Rs. 100 which is a very very low amount. The return that you expect to get ranges from 7-8%. Under Section 80C of Income Tax Act, you can claim a tax deduction upto Rs. 1 lakh.
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PPF
PPF is Public Provident Fund which was introduced by our government with a motive to help you to save for your ols age. The minimum amount that you can invest in your PPF a/c is only Rs.500. Based on your investment, you can claim a tax deduction upto Rs. 1.5 lakhs under Section 80 C of Income Tax Act. 15 years of lock-in period is mandated for PPF. Unlike ELSS fund, you can partially withdraw from your PPF a/c after 7 years.Usually, 7-8% interest rate per annum is offered by the government. The tax is exempted on the amount you invested.
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FD
FD is simply Fixed Deposit. It is an instrument through which you can invest a lump-sum amont with any banking institutions. The lock-in period of FD is 5 years. You can expect a return of 6-7%. You cannot withdraw amount prematurely before the lock in period. But you enjoy the benefit of availing loan against your FD at attractive interest rates.You can easily claim a tax deduction upto Rs. 1.5 lakhs in a financial year. In accordance with your tax bracket, the interest earned from your deposit is taxable.
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ULIP
ULIP is Unit Linked Investment Plan which is the combination of both insurance cover ande investment. ULIP aims to generate wealth alongwith life insurance coverage. That means, it
helps in investment at the same time secures you with insurance coverage, Let us explain it properly. The insurance company puts your invested money in a life insurance and puts the rest amount as per your prefernce in debt, equity or hybrid fund based on your financial goal. During the lifecycle of the investment, you have the right to switch your fund as per your need.
The lock-in period of ULIP is 5 years.The return that you expect depends on which fund you have invested. Now we will talk about the tax deductions on ULIP. The lump sum amount (or the gain) that you receive is not taxable under Section 10(10D). Also, you need to remember that, 2/3 amount of the lump-sum amount is taxable, but 1/3 amount of your person coverage is not taxable.
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NPS
NPS stands for National Pension Scheme. It is nothing but a government scheme where you get the opportunity to get a pension upon your requirement if you invest during your earning years. So, the lock-in period of NPS is up to your requirement. Initially, you can invest a minimum amount of Rs.500, but you have to invest a minimum of Rs. 6000 in a year. Under NPS, a maximum of 50% is invested in equity oriented instruments and the remaining is distributed among the treasury,government bonds etc. Based on your investment, you can easily claim a tax deduction upto Rs. 1.5 lakhs under Section 80C of Income Tax Act and also additional deduction upto Rs. 50000 under Section 80CCD(1B) of the Income Tax Act. Note that, under the condition of purchasing an annuity, you can prematurely withdraw upto a specified limit. Also, the amount at the time of the maturity is partially taxable.
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Investment | Lock-in period | Returns (Approximate) | Tax exemptions |
---|---|---|---|
PPF | 15 years | 7-8% | Taxable |
ULIP | 5 years | Depending on the type of fund | Partially taxable |
NPS | Till your retirement | 7-11% | Taxable |
FD | 5 years | 6-7% | Taxable |
NSC | 5 & 10 years | 7-8% | Taxable |
ELSS | 3 years | 12-16% | Tax Free* |
The result is based on historic performance of tax saving ELSS fund