Are we saving tax and making money?

Last year the government had increased the deduction under section 80C to Rs. 1,50,000/-. This year there has been no change, but an addition has been made in section 80CCD for investments in NPS. Let us look at our options with the changed scenario.

ELSS Funds – By far this is the most rewarding of all investment options. With a lock-in period of just three years and tax free returns with regards to both dividend and capital gains. To get the best returns, invest using the SIP option.

ULIPS – With management charges reduced, this is also a good option, which is given by ELSS funds as well. There are a bit expensive as compared to ELSS with regards to charges. The lock-in period is longer, you need to stay locked-in for minimum of 15 years and premium would need to be paid for 15 years. Don’t go by what the Insurance advisor would say, as you would benefit only if you keep paying the premium for the full term. Another advantage is there are free shifts allowed from debt to equity and vice versa, check the number of free shifts allowed.

PPF – Though the interest rate is 8.7%, this would be changed on a regular basis by the government depending on the interest rate scenario, which is likely to come down. You need to put in a minimum of Rs.500/- per year and there is a lock-in of 15 years.

Sr. Citizens Saving scheme – Interest rate is 9.2%, is ideal for people above 60 years with a lock-in of 5 years. Interest is paid quarterly which is taxable.

NPS – A good option for those looking to gain from the additional Rs.50,000 investment option, in addition to section 80C. The amount would be locked-in till retirement and then you would start getting pension from then. Pension would be taxable. The maximum deduction is limited to 10% of your salary for own contribution, but there is no limit on employers contribution. This is only for Tier I accounts.

Bank FD – Should be invested for 5 years, interest is taxable.

NSC - There are 2 types available 5 years and 10 years. Any investment is eligible for deduction. Interest amount received is taxable and also can be claimed under section 80C as investment, as interest is treated as reinvested.

Pension Plans – These are issued by insurance companies, at the end of the period, you have to buy an annuity, which would be taxable on receipt.

Insurance plans - Any premium paid for insuring your own life or that of your child or spouse is allowed as deduction. You have to ensure that the premium paid does not exceed 10% of the assured amount.

In addition to the above there is a deduction available for Principal repayment of Home Loan and Tuition fees.

If you have a housing loan, interest paid on housing loan to the extend of Rs. 2,50,000/- is allowed as deduction, under income from house property for self-occupied property.

Premium for health insurance is has been increased to Rs. 25,000under section 80D for self and family and Rs. 30,000/- for Sr. Citizens.

Make use of the options given to you and save tax. Tax saved is money earned. Invest right and make money.