The most probable reason as why you are reading this article is that you wish to find Best investment instruments for saving tax in India. When a financial year approaches end, you start worrying about how to save on the payable tax. You should start a little early to invest and reap the tax benefits. You should always search for instruments which have a certain amount of risk, low investment amount but the returns and tax benefits are high.
Comparison at a Glance:
Before we begin the comparison of the various options available in the market, let us add the pre-determined investment options (EPF, Home Loan Repayment and Tuition Fees). Then, find the amount utilized out of your Rs. 1.5 lakhs limit. Now, you can observe the table below, to choose a product that suits you the best.
|Lock-in Period||Pre-Tax Returns||Tax Applicable|
|3 years||14-16%||No tax|
|5 Year Bank FD
|5 years||9.5%||Interest is taxable|
|15 years||8.5%||No tax|
|5 or 10 years||8.5%||Interest is taxable|
|5 years||0-6%||No tax|
ELSS or Tax-Saving Mutual Funds:
The Equity Linked Saving Schemes (ELSS) is a type of equity linked mutual funds, which invests in equity or stocks. It offers a very high return i.e. 14-16%. Even though it is not a guaranteed amount, but the previous records show it is possible to get such returns.
The ELSS funds have a lock-in period of merely 3 years, which is the least among all the options. And the best part is that this is a tax free option. You have the option to invest up to Rs. 1.5 lakhs either as a lump sum or as SIP over the course of one year.
5 Years Bank Fixed Deposits:
It is similar to the regular bank FD except that they give little higher interest rates than the normal FDs. It has a 5 years lock-in period. These FDs do not come with the option of premature withdrawal.
You can’t exceed your investment more than Rs. 1.5 lakhs and the interest that you earn is taxable i.e. you have to pay tax on the interest you get every year. The TDS is usually 10% (and 20% if you haven’t submitted your PAN card) by banks and if your TDS is in the 20-30% bracket then you have to pay the remaining amount with your IT returns.
Public Provident Fund:
The PPF is a good investment option for the ones who expect certain returns. An interest rate, currently it is 8.7%, is calculated on your PPF and added every year. This is a tax-free option where you have a choice to pay in a lump sum or in small regular investments.
The lock-in period of a PPF account is basically 15 years with an extendable 5 years also. You can’t withdraw your money before 5 years complete and it is allowed under certain conditions only. You can get a PPF account through a bank or post office.
National Savings Certificate (NSC):
The NSC interest rates are fixed in April month every year. The current rate for a 5 year lock-in NSCs is 8.5% and for a 10 year lock-in NSCs is 8.8%. The interest collectively is taxable in this option. The main difference comes with the fact that the interest isn’t paid to the investor. Instead of this, this amount is reinvested in NSC for the next year. You can invest up to Rs. 1.5 lakhs through your local post office.
Best Investment Instruments for Saving Tax in India – Life Insurance Premium:
This is the Best investment instruments for saving tax in India. Most of the investors have understood the importance and benefits of this option. Let us also understand this little more. There are two types of life insurance policies:
- Term plans, which the risk to the life of the insured.
- Risk plus investment, which pay you money after maturity or in time of need.
Life insurance is not any extra expense. They are Best investment instruments for saving tax in India options which also ensure that your loved ones are left in the lurch when something unfortunate happens to you (i.e. the insured). The term life insurance is very affordable. For example, you can purchase a cover of Rs. 1 crore by paying Rs. 10,000.
The LIC of India offers its online payment services through its web portal. You can make your LIC premium payment online using net banking, debit or credit card.
This is complete information about the Best investment instruments for saving tax in India.
About the Author
Heather B. Armstrong
She is an American blogger who resides in Salt Lake City, Utah. She writes under the pseudonym of Dooce.