You are on page 1of 2

Ten tax saving investment options - Economic Times

http://articles.economictimes.indiatimes.com/2011-01-17/news/28430...

ADVERTISEMENT

ERROR
The requested URL could not be retrieved

Investor's Guide
Home News Markets IPO Personal Finance Tech Jobs Opinion Features Environment Blogs

News

Stock Quote

ET NOW Financial Times CMO Hub

ET Sunday Magazine

Executive Drive ET500 ET Realty Brand Equity Corporate Dossier

ET Travel

Investor's Guide

You are here: Home > Collections > Ppf

Ten tax saving investment options


ERROR
The requested URL could not be retrieved
Bakul Chugan Tongia, ET Bureau Jan 17, 2011, 02.59am IST

0
Tweet

1
Recommend

Tags: tax saving investment options

StumbleUpon Submit

As the fiscal end comes closer, it is time for investing to save tax. ET Intelligence Group brings you a ready reckoner of the various tax-saving investment options. Apart from the regular investment options under Section 80C of the income tax act, this year investors have an added advantage of investing in infrastructure bonds and enjoy an additional deduction in tax under section 80CCF of the Income Tax Act.

The following error was encountered while trying to retrieve the URL: http://127.0.0.1 /cgi-bin/squidGuard.cgi? Connection to 127.0.0.1

RELATED ARTICLES Best ways to save on taxes


January 28, 2005

Want to save tax? Try PPF


April 26, 2004

Ulips, equity MFs to lose tax cover in new-look Code


June 17, 2010

SECTION 80C DEDUCTIONS: Investment options under Section 80C can be broadly categorised as market linked, fixed income and insurance. The fixed income category includes investment options such as the Public Provident Fund (PPF), Employee Provident Fund (EPF), tax-saving bank fixed deposits, National Savings Certificate (NSC) and senior citizens savings schemes. While it is the most popular tax saving category, market-linked instruments including tax-saving equity mutual funds (ELSS) and unitlinked insurance plans (ULIPs) are gradually catching up. PUBLIC PROVIDENT FUND (PPF): One of the oldest investment options, PPF scores on all grounds as it is one of the very few investment options that fall under EEE (exemptexempt-exempt) tax regime. This implies that not only the investor can enjoy deduction on the amount invested in this scheme but the interest received on maturity is also exempt from tax. PPF offers an interest rate of 8% compounded annually, with the maximum investment restricted to Rs 70,000 a year and mandatory investment tenure of 15 years. An investment of Rs 70,000 every year in PPF for 15 years will amount to a taxfree maturity sum of Rs 20.5 lakh at the end of the 15 year tenure. EMPLOYEE PROVIDENT FUND (EPF): Under the current norms, 12% of the employee's salary is contributed towards EPF, which is exempt from income tax. Any contribution over and above the 12% limit by the employee towards EPF is consider as voluntary provident fund (VPF) and the same is also exempt from tax, subject to the overall 80C limit of Rs 1 lakh per annum. Like PPF, EPF, also falls under the EEE tax regime wherein the interest received (on retirement from service) is tax-free in the hands of the investor. The interest payable on EPF is determined each year by the Employee Provident Fund Organisation (EPFO). After having maintained a steady interest rate of 8.5% per annum for quite some time, the EPFO has enhanced the rate of interest to 9.5% for the financial year 2010-11. While it is still not sure whether such an attractive interest rate will continue in the following years, those who have been contributing to EPF for quite some time now and have accumulated a large corpus are bound to benefit immensely with this year's higher interest as interest is compounded annually. NATIONAL SAVINGS CERTIFICATE: Similar to PPF, NSC also earns an interest rate of 8% per annum and investment up to Rs 1 lakh is exempt from tax under section 80C. However, unlike PPF, interest received on NSC, at the time of maturity, is taxable in the hands of the investor which makes it comparatively less attractive. On the positive note, however, NSC has a relatively shorter lock-in period of just about 6 years and the interest here is compounded halfyearly. Thus, every Rs 100 invested into NSC will grow to Rs 160.10 on maturity. TAX SAVING BANK FDS: Investment up to Rs 1 lakh in these special tax saving bank fixed deposits also entails an investor tax deduction under Section 80C. These fixed deposits mandate a lock-in period of five years and interest is compounded quarterly, just like any

IN-DEPTH COVERAGE Ppf Public Provident Fund

1 of 2

08-Feb-12 7:45 PM

Ten tax saving investment options - Economic Times

http://articles.economictimes.indiatimes.com/2011-01-17/news/28430...

other ordinary bank fixed deposit. The drawback is taxability of interest income upon maturity. As most banks are currently offering attractive interest rates, tax-saving bank fixed deposits are currently offering interest rates as high as 8.5% to its investors. SENIOR CITIZENS SAVING SCHEME: Indian citizens who have attained 60 years of age or those who have attained at least 55 years of age and have opted for voluntary retirement scheme are eligible to invest in senior citizens saving scheme, which offers a fairly attractive interest rate of 9% a year, payable on quarterly basis. While investment in this scheme is eligible for tax deduction under Section 80C, interest earned shall be taxable in the hands of the investor. EQUITY LINKED SAVINGS SCHEME (ELSS): These tax saving mutual fund schemes do carry an embedded market risk and calls for investor prudence before making an investment decision. However, their returns are equally rewarding and tax free in the hands of the investor. As ELSS has a mandatory lock-in period of three years, they are positioned as long-term equity assets and thus returns are taxfree in the hands of the investor. And though these schemes mandate a threeyear lock-in period, investors are likely to be better off if they continue to stay invested for a longer term as equities generate best returns over a longer time frame.

1 | 2 | Next FEATURED ARTICLES

How Varsha Bhawnani turned Vinegar Exports into Rs 12-cr brand More:

14 lakh Aakash Tablets booked in 14 days

How to choose the best infrastructure bonds this tax-saving season

Dhanalakmi Bank chief Amitabh Chaturvedi resigns Mahindra XUV 500 launched at a starting price of Rs 10.8 lakh New Swift Dzire launched by Maruti at a starting price of Rs 4.79 lakh

Aakash tablet: World's cheapest tablet goes on sale for Rs 2500 online LIC launches Jeevan Ankur child plan Silver's path rarely smooth; don't forget the dark clouds

2012 Bennett, Coleman & Co. Ltd. All rights reserved www.economictimes.com

Index by Date | Index by Keyword Advertise with us | Terms of Use | Privacy Policy | Feedback

2 of 2

08-Feb-12 7:45 PM