Investments in Tax

Saving products - an
overview
 •Tax Saving Investments are an integral part of one’s life
as they offer tax deduction under section 80C or

Tax Saving •80CCC. Taking into account, the importance of these

investments, people frequently wish to invest.

Investments •However, they are not keen enough to invest due to low
returns and different risks associated with various
investments.
 • Reduce your income tax by up to ₹46,350 every year
with Section 80 (C) investments
• Investments up to a total of ₹1.50 lakh in 80 (C) are
exempt from taxable income
Importance of
• ₹1.50 lakh investment can double to ₹3.02 lakh in just 5
80(C) Tax years!
Savings • Section 80 (C) popular for tax savings => first investment
for many
• PPF, ELSS Mutual Funds, Tax-saving FDs, NSC, ULIP
popular schemes for 80 (C) savings
 •Issued by Public Sector Entities
•Long Term Savings Option
•Interest earned on these bonds is non-taxable.
•Bonds having credit rating AA and AAA are likely to meet
TAX FREE their financial commitments.
• Returns on these bonds are beneficially only after lock-in
BONDS
period because the returns are guaranteed at maturity.
•If sold before lock-in-period ends, then you may get an
amount higher or lower than the initial amount
investment.
 •It is an equity-oriented mutual fund in which the returns
are tax free as per Section 80C of Income Tax Act, 1961.

•3 Years lock-in-period.

EQUITY •Return on investment: 8-10% p.a.

LINKED •Since the gains are earned through equity investments,

SAVINGS they may be relatively higher than the Fixed Deposits and

SCHEME Debt-Oriented Savings Instruments.

(ELSS) •Good Short Tern Investment Cum Savings Options.

•Investors must be well aware of its past performance and

befine with taking a moderate amount of risk while
investing.

 Point to remember: It is better to avoid investing in ELSS if you don’t have

knowledge about investment in mutual funds. Investing in ELSS without
proper research can even erode your capital.
 •Investment in National Savings Certificate (NSC) is also tax
deductible under section 80C subject to the maximum limit of
Rs.1 lakh. The tenure of NSC is 5 year or 10 year and you can
invest in either of the two.

National •Return on investment: 8.5% p.a. for 5 year investment & 8.8%
Savings p.a. for 10 years investment.
Certificate
 Point to remember: The entire interest on NSC is received
on maturity, but the yearly interest has to be declared
every year in your income tax returns and tax has to be
paid on it. Carefully evaluate the lock-in period and the
taxability before opting for investment in NSC
 •Introduced to encourage first time investors into adopting the equity culture.

•Maximum Investment amount is Rs.50000/- and 50% of the investment can be used for
tax benefits under Section 80CCG.

RAJIV GANDHI •Returns are market based with a moderate to high amount of risk.

EQUITY
•Dividends are tax-free.
SAVINGS
SCHEME •1 Year lock-in-period.
(RGESS)
•A smaller investment amount and a lesser lock-in-period definitely makes the RGESS a
more appealing option if you are investing in equity savings scheme for the first time.

 Point to remember: RGESS is not so easy to understand as the fixed deposit. For first
time investors, it is advisable to invest in simple schemes rather than investing in the
equity market.
 •NSCs are savings certificate issued by post office.
•Good Tax Saving Instrument.
5 YEARS AND • 5 Year and 10 Year lock-in-periods offer guaranteed
10 YEARS returns at maturity.
NSCS •Interests earned are taxable as per individual’s Income
Tax Slab.
•No TDS.
 •Traditional yet highly preferred retirement planning instrument.

•Great Long Term Saving Investment providing an interest of 8.7%

annually for the year 2013-2014 term.

•Maximum Investment Rs.100000 per annum.

PUBLIC
•Additional benefits include the option of taking loans from the start
PROVIDENT of third year to the end of the 5th year as well as withdrawals
FUND (PPF) from the sixth year onwards.

•Accumulated amount plus the interest received on

maturity is no-taxable.

 Point to remember: You should note down the yearly contribution

to your EPF account so that you know how much more is to be
invested for claiming the Rs.1 lakh exemption under section 80C.
 •New pension system is considered one of the cheapest
retirement products. The tax benefits on NPS are – 1)
Own contribution under 80CCD (1) up to Rs.1 lakh p.a.
and 2) Employer contribution under 80CCD (2) with no
upper limit.
New pension
system •Return on investment: 8-12% p.a.

•Point to remember: Those who are already investing in

EPF should not consider investing in NPS if it is just for tax
saving. Also note that it has an equity investment limit of
50%.
 •Senior citizens savings scheme is also a part of section
80C. It is available to senior citizens i.e. citizens above 60
years. This post office product has a maturity period of 5
years which can be further extended by 3 years after
Senior maturity.
citizens
savings •Return on investment: 9% p.a.
scheme
•Point to remember: You cannot withdraw from SCSS
before 5 years and the only option is premature closure of
the account after 3 years.
 •Under Section 80C, fixed deposits with the bank for
a lock-in-period of not less than 5 years is exempted
from tax.

•Applicable with Rs.100000 limit which includes life insurance and

TAX SAVER provident funds.
FIXED
•Return on investment: 8.5-9.5% p.a.
DEPOSITS
 Point to remember: To avail tax benefit on FD investment there is a
lock-in period of 5 years. So you must evaluate your decision
carefully before investing as your interest rate remains fixed for
the entire tenure and you cannot take the benefit of if interest
rates increase later on.
 •Gives assured returns on maturity.

•Risk cover to protect your family in case of untimely

events.

LIFE •Tax benefit under Section 80C for the premium paid
INSURANCE for the policy.

•Additional benefits, once the policy term finishes.

•Point to remember: For claiming tax benefit under insurance there is a

condition Under Section 10(10D), that the premium amount should not
exceed 10% of the sum assured to be eligible for this deduction. Avoid
investing in life insurance policies which mix insurance and investment as
the higher charges and other restrictions will result in lower returns on
investment.
 • Benefit under Section 80D upto Rs.15000 on policies
for yourself, spouse and children.
• And if you are paying health insurance premium for
your parents as well, then you can get an additional
HEALTH benefit of Rs.15000 taking total benefit of Rs.30000.
INSURANCE • These benefits are subject to couple of conditions,
you must be less than 65 years of age and policy
premium must be paid through cheque or credit card
and not cash.
Conclusion
•These various tax saving instruments are available.
But before choosing amongst them, remember that
these are also long term investments and so should
optimize your tax saving and return on investment.
Comparison
 Best Tax-
Saving
Investments
Under Section
80C