If 2017 was hard on your finances, the new year is the best time to set things in order. We tell you how you can start by opting for the best tax-saving plans.
We’re in the final month of the year 2017, and now maybe a good time to reflect on aspects of your life that need improvement or changes. If one of those things happen to be your finances, you can start the new year on a positive note by getting a grip on your finances. Investing in tax-saving plans in 2018 is a smart move that your future self will thank you for.
Most salaried individuals consider investment options that not only save taxes but also generate considerable returns. Here are some plans that help you achieve both:
1. ELSS Tax Saving Mutual Funds:
ELSS or Equity Linked Saving Schemes are one of the most popular tax-saving plans that also double up as a viable form of investment offering great returns. ELSS is a form of open-ended Mutual Funds that offer tax benefits falling under Section 80C of the Income Tax Act. Similar to other Mutual Fund schemes, there are no guaranteed returns on ELSS. One can get returns ranging between 12-18% in ELSS funds. Compared to any other tax savings scheme, ELSS Funds have the lowest lock-in period of three years.
One can start investing in ELSS Funds with an amount as low as Rs. 500. Investors in ELSS Funds can avail the SIP option that will reduce the burden of paying out a lump sum and generate higher returns. However, one must note that the 3 year lock-in period is applicable on one’s monthly SIP. E.g. If your SIP starts in January 2018, the lock-in period will end in December 2021. To top it all, returns from ELSS are tax-free as it’s an equity Mutual Fund where you are investing for more than 3 years. One can get tax savings on investments up to Rs. 1.5 lakhs per annum in ELSS.
Additional reading: Huge Mistakes To Avoid While Investing In ELSS
2. Public Provident Fund (PPF):
One of the best tax instruments in India, interest earned on deposits in PPF is not taxable. Deposits made towards PPF accounts can be claimed as tax deductions. It offers 7.8% interest per annum (Oct-Dec, 2017). The Govt. of India keeps revising this every quarter. PPF has a lock-in period of 15 years.
One can open a PPF account at any nationalised, authorised bank or authorised branches/post offices. The government of India sets and decides the interest rates. Interest is calculated for a financial year according to the rate announced for the said year. Unlike Fixed Deposits, rates are not fixed for the entire tenure of the building.
Some of the key features of the PPF Scheme are as below:
| Interest rates | 7.80% |
| Tenure | 15 years |
| Initial investment/deposit | Rs.100 |
| Annual Deposit amount | Rs.500 – Rs.1.5 lakhs per year |
| Deposit frequency | every year, for 15 years |
| Deposit modes | Via cash, cheque, PO, DD, online funds transfer |
| Nomination | Allowed |
| Loan facility | From year 3 to year 6. |
| Renewal | Allowed, for an extra 5 years at a time. |
| Joint accounts | Not allowed. |
| Withdrawals | · Every year from year 7 |
| · Funds can be withdrawn completely only at maturity. | |
| Tax advantages | · Interests are tax-free. |
| · Deposited amounts are tax deductible U/S 80C of the Income Tax Act | |
| Fund transfer | · Easily transferred between bank branches or post offices for free. |
| · Funds/accounts cannot be transferred to people |
Additional reading: 15 Things You Need To Know About PPF
3. Sukanya Samriddhi Yojana Account (SSY) For Girl Children:
If you have a girl child and want to start making investments towards her higher education or her secure future, you can consider the SSY scheme. Aimed at improving the condition of the girl child lot in India, this scheme offers an attractive interest rate of 8.6% per annum. The government, however, keeps revising the rate and communicates to the account holders accordingly.
The parent/guardian of the girl child can open the account and operate it on her behalf till she turns 18. The parents/guardian of the girl child can make deposits till the girl attains 15 years of age. One can make partial withdrawals on account of the girl child’s marriage or higher studies when she’s 18 years. Investors can deposit money up to Rs. 1, 50,000 in this scheme. Only when the girl child has reached 21 years of age, can she close an SSY account. Even after the child turns 21, if one doesn’t close the account or withdraws money, then the account continues to earn interest.
Additional reading: Changes In The Sukanya Samriddhi Yojana Scheme
4. New Pension Scheme (NPS):
Those who are looking to stay financially secure during the twilight years can opt for the NPS scheme to save tax under Section 80C. For individuals who’re working in the unorganised sector, this is a viable investment option to stay financially prepared for those years when you’re out of work. The investor needs to deposit a minimum amount of Rs. 500 and a minimum of Rs. 6,000 every year. Investors have the choice to opt for allocation of equity, bonds, and gilts.
Beyond 80C, one can get an additional exemption of Rs. 50,000 by investing in Tier 1 scheme under Section 80CCD. In Tier 1, one cannot withdraw the investment before retirement. NPS is easily one of the most sought-after schemes to build a retirement corpus.
Additional reading: FAQs On The New Pension Scheme
5. Senior Citizen Saving Schemes (SCSS):
Designed for individuals above the age of 60 years, this scheme is a long-term saving option that offers unmatched security. It’s available through certified banks as well as network post offices across India. An SCSS account extends up to 5 years and upon maturity, can further be extended for another 3 years. The depositor can make one deposit into this account, an amount that is a multiple of Rs. 1,000 and not extend it beyond Rs. 15 lakhs. The returns on this scheme are impressive with an interest rate of 8.6% per annum.
The maximum investment limit is Rs. 15 lakhs and interest earned is taxable like any other Fixed Deposit scheme. One can prematurely close one’s account after one year on deduction of an amount equal to 1.5% of the deposit and after 2 years, 1% of the deposit.
Additional reading: How Senior Citizens Can Save And Invest Better With Mutual Funds
Investments can be hugely rewarding and even lead to greater savings if you plan them right and are willing to take some risks. Hope this list helps you get your finances in order and start the new year with a bang!