We all know that to save more money from taxes, section 80C of the Income 1961 requires a certain deduction to reduce tax liability for taxable income. Many people are concerned about taxation, particularly newly joined workers. Everybody wants to know how they can spend their hard-earned money and reduce tax under various sectors. All deductions under section 80C can be claimed by an individual and HUF (Hindu undivided family). Here we discuss the 6 Best Tax Saving Investments option and also know the reason to be on the top 6 under Section 80C.
Equity Linked Savings Scheme
ELSS mutual funds give you the double benefit of tax savings and a higher return on investment compared to bank FD, PF, NSC and other investment savings options. ELSS funds are tax-saving mutual funds, which invest most of the funds in equity schemes with a lock-in period of 3 years. In accordance with Section 80C, you can use the tax benefit up to Rs 46,800 by investing up to Rs 1.5 lakhs per year in ELSS. In addition to other standard investments like FDs, NPS, etc, ELSS has advantages lowest lock-in period and higher returns as compared to other tax saving options.
Therefore it is more suitable for investors who want avail long term benefits. 10% LTCG tax is applicable if profits exceed Rs.1 lakh per annum. One can invest a minimum amount of Rs 500 through Growth Option, Dividend Option or Dividend Reinvestment Option and he/she must wait to complete the lock-in period of three years as ELSS does not allow partial withdrawals in between. Some of the top 5 ELSS Funds to invest in 2020 are Axis Long Term Equity, Aditya Birla SL Tax Relief 96, DSP Tax Saver, Mirae Asset Tax Saver and Motilal Oswal Long Term Equity.
In the fixed income classification, tax saving infrastructure bonds are a decent option, issued by government-approved infrastructure firms and offering a decent interest rate plus tax benefits. It is best suited for those people who want a fixed income for their investment. These bonds are often maturity between 10 and 15 years and can be redeemed after five years of lock-in. Such bonds are listed on either or both the National Stock Exchange or the Bombay Stock Exchange which gives you an opportunity to exit after the duration of lock-in. Under Section 80 CCF of the Income-Tax Act, investment up to Rs 20,000 in these bonds is liable for income tax deduction.
In these bonds, Hindu undivided families and any citizen Indian who is not a minor may invest a minimum amount of Rs 5000. Currently, Infrastructure Bonds offering interest rate between 7.25% to 8.25% which is paid annually or cumulatively. While investing it is suggested to the investors to check the rating. A triple-A-rated (AAA) bond is a good tax saving scheme for your investment. This bond can be managed from both the demat account and physical form. The interest earned is applied to income and paid according to the income tax bracket of the individual if the annual interest is less than Rs 2,500, no tax is deducted. It is one of the best tax saving options as the consistency of the instruments can be measured from ratings provided by agencies such as CARE, FITCH, CRISIL and ICRA.
Senior Citizen Saving Schemes(SCSS)
Senior Citizens Savings Scheme (SCSS) is a pure government savings scheme given to people aged 60 years of age. The tenure of the scheme is 5 years but can be extended to an additional 3 years. The main goal of the scheme is to provide financial support to the investors with a benefit of regular income and the interest is guaranteed which is paid on a quarterly basis. The SCSS interest rate for the duration from January to March 2020 was set at 8.6%. It is one of the small saving options with the highest interest rate in India. SCSS is accessible through the Public / Private Banks and Post Offices. As it is a government saving scheme the terms and conditions for the SCSS are the same, irrespective of which bank/post office you invest. SCSS investment is eligible for the deduction of tax under section 80C of the 1961 Act on Income Tax.
As per the current regulations you are liable to pay TDS (Tax Deducted at Source) in the interest earned is more than RS 50 000 in one fiscal year. The SCSS maximum limit is Rs.15 lakh investors can deposit in a minimum lump sum deposit of Rs.1000. Although deposits can be made in cash on the SCSS accounts, this is only allowed for the amount less than Rs. 1 lakh. If the deposit sum for the Senior Citizens Savings Scheme reaches Rs. 1 lakh, it is compulsory to use a cheque/demand draft for making the deposit. This provides security and protects your investment as it is a government scheme and also allows you fair returns on your investment. The scheme is also accessible to retired defence employees regardless of the age limits stated above. Pursuant to Section 80C of the Income Tax Act, 1961, investors who make investments in Senior Citizen Savings Scheme will qualify for income tax deduction benefit up to Rs. 1.5 Lakh.
Employees Provident Fund
EPF is the primary scheme under the Provident Funds and Miscellaneous Provisions Act of 1952 for the employees of India. The scheme is operated under the support of the Employees Provident Fund Organization (EPFO). In compliance with EPF, an employee is obligated to pay a certain contribution to the scheme and the employer shall pay the same contribution. The employee earns a lump sum amount of returns on both including the self and employer contributions at the time of retirement. Salaries applicants must have a minimum income of Rs 15,000 per month to invest in EPF. The employee who is earning more than Rs.15,000 may also register for an EPF account; however, he/she must have the permission of Assistant PF Commissioner.
The employer's contribution is 12% of the basic salaries with the low wage allowance and the allowance for retention. The equal contribution shall also be owed by the employee. In the case of establishments which employ less than 20 workers or meet certain other requirements, as provided for in the EPFO regulations, the contribution rate for both employees and employers is limited to 10%. According to the EPF Act, in order to qualify for a final PF settlement, one must withdraw the amount at the age of 55. The total balance of the EPF shall include the employee's contribution including the current interest rate of 8.65%.
Sukanya Samriddhi Yojana
The government recently unveiled the "SUKANYA SAMRIDDHI YOJANA" which is mainly aimed at saving money for the girl child. Sukanya Samriddhi Yojana is a small saving scheme that can be opened in the form of a baby girl savings account in post offices and specified public and private banks. The government of India launch this scheme only for the girl child to receive higher education or marriage requirements and should be opened by their parents or legal guardians. It is one of the high-paying investment option under Section 80C with an interest rate of 8.5%. At the time of account opening the girl child should be under 10 years. The account will be fully operational until the girl reaches age 21. The minimum investment starts from Rs 250 to a maximum of Rs 1,50,000 annually with further deposits in the multiples of Rs. 100.
The government is allowed only 2 Sukanya Samriddhi Yojana account for a girl child. You can only deposit money in the account for the period of 14 years from the day you opened it. You have to submit the documents like Birth certificate of the child, Resident Proof and Identity Proof at the time of opening Sukanya Samriddhi Yojana account after which you will get a passbook of the scheme that has account holder details (name of the daughter) and other information such as opening dates etc. The best part of the scheme is if you want to close the account for marriage purposes before the age of 21, then you have to submit an affidavit that the girl has reached at least 18 years of age so that one can not use it for child marriage (before the age of 18). You can also partly withdraw 50% of the amount from the account after the girl reaches the age of 18 for educational purposes and the rest remaining amount can be used for marriage purposes once the girl reaches the age limit.
National Pension System
The National Pension Scheme (NPS), a government initiated pension scheme, was introduced for government employees in January 2004. The primary focus of the scheme is to help the employees to save their money for retirement and also generate regular income once they retire. While it is possible to withdraw up to 60% of the maturity corpus as a lump sum upon maturity, the rest is compulsorily annuitized upon the retirement. To invest in NPS the individual must have a minimum age of 18 years to 65 years, but the good thing of the scheme is that both the Indian resident and NRI's are eligible for the scheme. NPS is administered by Regulatory & Development Authority PFRDA - Pension Fund.
The invested money in NPS is managed by the Pension Fund Managers (PFM). Some of the top performing NPS schemes in 2020 are Aditya Birla Sun Life Pension Management Limited, HDFC Pension Management Company Limited, UTI Retirement Solutions Limited, SBI Pension Funds Private Limited, ICICI Prudential Pension Funds Management Company Limited, Reliance Pension Fund and much more. In compliance with Section 80 CCD(1), the employees own NPS contributions include tax deductions, up to 10% of the salaries with death allowances and 20% of the total income in a fiscal year for self-employed persons, but within the overall limit of Rs. 1,50,000 under the section Section 80C and Section 80CCD(1b). In case if it exceeds 1.5 lacs the contribution can be claimed under section 80CCD(1) of the Income Tax Department.
There are 4 types of investment option for NPS which are mentioned below:
- Equity (High Risk - High Returns)
- Corporate Bonds (Moderate Risk - Moderate Returns)
- Government Bonds (Low Risk - Low Returns)
- REIT&InvIT (Very High Risk - Moderate Returns)
Below is the top 5 performing NPS Schemes with highest returns in India 2020.
|Scheme||NAV||1 Year Return||3 Years Return||5 Year Return|
|LIC Pension Fund -Scheme G TIER II||21.0721||17.20%||10.22%||10.44%|
|LIC Pension Fund -Scheme G TIER I||20.6694||16.39%||9.67%||10.16%|
|Kotak Pension Fund Scheme A TIER I||12.8731||15.46%||8.34%||-|
|HDFC Pension Fund Scheme G TIER I||19.1511||15.29%||8.19%||9.16%|
|HDFC Pension Fund Scheme G TIER II||19.5416||15.09%||8.12%||9.13%|
About the Author:
Vipul Das has graduated in BCA from Dr C.V Raman Univeristy and is writing finance related articles and content for Goodreturns since last 1 year. You can connect with him via Facebook and Twitter.