Learn about Tax Saving Schemes

As March is progressing, its high time to invest in any of the below tax saving plans. If u would like to know how tax is calculated click here

Public Provident Fund(PPF)

A PPF account can be opened at anytime during the year. It is safe to invest in the instrument, as it is government-backed. Apart from a Post Office, a PPF account can also be opened in SBI & its associates and other select nationalized banks.

The PPF account matures after 15 years.

Tax benefit: Rebate under section 88 for the amount invested. Interest accrued is Tax-free.

Interest 8.0% p.a. (compounded annually) is credited to the PPF account at the end of each financial year.

National Savings Certificate (NSC)
This scheme is available through out the year. It is open to single, joint, minor with parent/guardian, HUFs. It is useful for people who invest to save tax.

Tax benefit: Rebate under section 88 and exemption can be claimed under section 80L for interest accrued on the NSC. Interest accrued for any year can be treated as fresh investment in NSC for that year and tax benefits can be claimed.

Interest rate - 8%

Infrastructure bonds

Infrastructure bonds provide tax-saving benefits under Section 88 of the Income Tax Act, 1961, up to an investment of Rs.1,00,000, subject to the bonds being held for a minimum period of three years from the date of allotment.

Tax benefit: Rebate under section 88. For interest or returns, tax benefits can be obtained in most cases under section 80L of the Income Tax Act.

Interest rate: 5.5-6%

The Maximum investment limit is Rs 100000

Kisan Vikas Patra (KVP)

Kisan Vikas Patra (KVP) doubles money in eight years and seven months. This is a good investment instrument for all retired persons who would require the money at a later date and for those who do not have taxable income.

Tax benefit: Rebate under section 88. For interest or returns, tax benefit under section 80L of the Income Tax Act is available.

Interest rate - 8%

Equity-Linked Saving Schemes (ELSS)

Equity linked savings scheme (ELSS) are equity funds floated by mutual funds. This scheme is suited for young people as they have the ability to take on higher risk. The ELSS funds should invest more than 80 per cent of their money in equity and related instruments. It is ideal to invest in them when the markets are down. These funds are now open all the year round. The other way of investing in these funds could be a systematic investment, which essentially means investing a small sum regularly (monthly or quarterly). It is a market-linked security and therefore there will be risks accordingly.

They offer a 20 per cent tax rebate on investments up to Rs 10,000 in a given financial year.

Tax benefit: Rebate under section 88

Long-term capital gains tax are exempt from tax.

Returns are market linked.

The Maximum investment limit is Rs 10000.

Insurance policies

There are a range of life insurance products to choose from, such as term life insurance, whole life insurance, variable life insurance, universal life insurance, and variable universal life insurance. Annuities are tax-deferred investments that guarantee you regular payments at some future time, usually retirement. It is a market-linked security.

Tax benefit: Rebate under section 88

Interest or returns are not taxable

Interest rate: Depends on fund management

The Maximum investment limit is Rs 70000

Pension policies

Pension plans apart from playing a significant role in retirement planning, also offer tax benefits under a dedicated section i.e. Section 80CCC. Premiums paid for the same are eligible for deduction. It is a market-linked security.

Interest rate - Depends on fund management

The Maximum investment limit is Rs 10000.

Most insurance companies give the individual an option to withdraw a part (25-33 per cent) of this sum as a lump sum on maturity. The amount withdrawn or the cash component is tax-free.

As there is no tax rebate for those with income above Rs 500,000 it is better to invest in a retirement plan and thereby, claim the Section 80CCC deduction.

For interest or returns 2/3rd withdrawals are taxed but annuities are taxable

Mediclaim

The Mediclaim Policy of LIC provides the investor cover against heavy hospitalisation expenses for specified ailments. For interest or returns there are taxes on Mediclaim benefits. This scheme is open for any person in the age group of 5 to 75 years Children between 3 months and 5 years can be covered only along with parent/s, Institutions ( Government or Private ) for their employees, Clubs / association for their members in the said age group. Group schemes are also available.

Exemption available under income tax (80D of Income Tax Act) for Premium paid by cheque.

A discount of 10% of total premium for coverage of family under a single policy.

An assessee under section 80D is entitled to deduction up to Rs. 10,000 a year in respect of premium paid by him/her by cheque for insurance on his health or on the health of his spouse or dependent parents or children, and in case of a Hindu undivided family on the health of any member of such family.

Interest rate: NIL

The Maximum investment limit is Rs 10,000 (Rs 15,000 for senior citizens)