The tax season is here and I have started getting mails and comments asking for the “Best Tax Saving Investments”. Unfortunately there is no straight answer to this. The best investment is different for different people and is aligned with their return expectations, risk taking ability, personal circumstances, and alignment with their financial goals among other things.
You can claim maximum deduction of Rs 1.5 Lakhs u/s 80C (including Sections 80CCC, 80CCD) by investing in eligible instruments. Unfortunately investments and expenditures allowed u/s 80C is too crowded and that makes the choice difficult for most people.
Below is the list of investments/expenses eligible for deduction u/s 80C:
The post below suggests the approach to select the investments for tax planning.
The first step is to check all expenditures which are eligible for tax deduction. Below is the list:
The expenses on tuition fees for full time courses for maximum of two children is eligible for deduction u/s 80C. However, the deduction is not available for tuition fee to coaching classes or private tuitions. The following expenses are not considered as tuition fees – Development Fee, Transport charges, hostel charges, Mess charges, library fees, Late fines, etc.
Stamp duty and registration charges up to Rs 1.5 Lakh can be claimed for deduction u/s 80C. The payment should have been made in the same financial year for which the tax is being paid. i.e. the deduction cannot be carried forward to next year. Also the house should be in the name of assessee claiming deduction.
Also Read: How builders use super built-up area to deceive home buyers?
In case you have paid stamp duty for new home, you most probably would exhaust your 80C limit for the year and no further investment might be required.
There are some compulsory deductions that are eligible for tax benefit u/s 80C. Check if you contribute in any of such deductions:
EPF is a compulsory deduction for most salaried employees. The deduction can be 12% of the basic salary & dearness allowance or Rs 1,800 every month. Look at your salary statement to know how much have you contributed for the year. Count only your contribution. Employer’s contribution is not eligible for tax saving investment. You can also have some amount contributed through Voluntary Provident Fund (VPF), which can be up to 100% of the basic salary & DA.
Also Read: VPF – A Good Retirement Option!
NPS (Tier 1) is compulsory for most Government employees who joined after 2004. Look at your salary slip to check your deduction. Again only your contribution is valid deduction. Employer’s contribution is not eligible. The good thing is you can use this contribution to claim additional tax deduction up to Rs 50,000 under the newly introduced Section 80CCD(1B). We have explained this at the last paragraph of the post.
Also Read: NPS – Maturity, Partial Withdrawal & Early Exit Rules
There are some deductions which happen year on year like home loan repayment, insurance premium etc.
Are you paying home loan? The principal component paid every year is eligible as tax deduction. For this you can download the tax statement from banks’ website. In case not get it from the loan provider. This would give you an estimate of principal and interest paid for the financial year.
Have you bought life insurance products like ULIP, Endowment Plan or Term Insurance where you need to pay the premium for subsequent years? If you want to continue investing in the same you can continue to claim tax benefit.
If you have PPF account you should contribute minimum Rs 500 in a financial year. In case you don’t do, a fine is levied.
Minimum deposit of Rs 1,000 needs to be made every year else penalty of Rs 50 is levied.
Do you have NPS account? A minimum contribution of Rs 1,000 is required every financial year to keep the account active.
For many people the 80C deduction limit is reached by this time. In case not, choose from the list below depending on your risk profile and investment goals:
Do you have dependents? Would they survive financially in case something happens to you? Do you have enough life insurance? If no go get a term insurance first. It’s important to opt for protection first.
Useful Tips:
Also Read: 9 Tips to Buy the Right Life Insurance
Popularly known as Tax saving Mutual Fund. These are equity based mutual funds and one of the best investment options to create wealth in the long run while saving tax. In case you can digest the volatility of stock market, this is the recommended option.
Lock-in Period: 3 Years
The Good:
The Bad:
Also Read: Best ELSS (Tax Saving Mutual Fund) to Invest in 2017
Helpful Tips:
PPF is another popular tax saving investment option for 80C, especially for people without any other provident fund.
Lock-in Period: 15 Years. However partial withdrawal is allowed from 7th year
The Good:
The Bad:
Also Read: PPF – A Must Have Investment
Helpful Tips:
SCSS is good option for senior citizens (above 60 years of age) as it gives regular quarterly interest income directly in bank account.
Also read: All about Senior Citizens’ Savings Scheme
Lock-in: 5 years
The Good:
The Bad:
Helpful Tips:
SSA can be opened by parents of girl child subject to certain conditions. SSA can be a good option for fixed income investment for child. However you should also invest in ELSS or other equity mutual funds for goals related to child.
Also Read: All about Sukanya Samriddhi Account
Lock-in: Deposit to the account to be made for 14 years and account matures at 21 years from date of opening
The Good:
The Bad:
Helpful Tips:
NSC can be bought at post offices to save tax u/s 80c. It is available for 5 years (NSC VIII) only. The interest offered is 7.8%.
Also Read: All about NSC (National Saving Certificate)
Lock-in: 5 Years
The Good:
The Bad:
Also Read: Calculate Tax on Arrears in 7 Easy Steps
Helpful Tips:
India loves fixed deposits and FD which saves tax is obviously very popular.
Also Read: Highest Tax Saving Bank Fixed Deposit Rates U/S 80C across 44 banks
Lock-in: 5 years
The Good:
The Bad:
Helpful Tips:
There are Pension plans from mutual funds which offer tax benefit u/s 80C:
The above funds are hybrid or balanced mutual funds – the first two funds are debt oriented mutual fund while the one from Reliance has two funds – one debt oriented and other equity oriented.
Lock-in: 5 years
Helpful Tips:
Download:Excel based Income Tax Calculator for FY 2017-18 [AY 2018-19]
Some of you might have to contribute compulsorily to NPS. In this case you can take deduction up to Rs 50,000 under the newly introduced Section 80CCD(1B). And then you can choose more efficient investment for 80C.
Here is an example:
Mr Amit is Government employee and has compulsory NPS deduction of Rs 60,000 every year. Until last year this NPS was part of Section 80C deduction. After introduction of Section 80CCD(1B), he can claim Rs 50,000 deduction under this section. Rest of Rs 10,000 (Rs 60K – 50K) can be claimed as deduction u/s 80C. And he can additionally make investment of Rs 1.4 lakhs in other 80C instruments like PPF, ELSS, etc – taking his total deduction to Rs 2 lakhs [Rs 1.5 lakhs from 80C & Rs 50,000 from Sec 80CCD(1B)]
However for people who do not have NPS account, it might NOT make sense to open one just for newer introduced tax benefit u/s 80CCD(1B). You would do better to pay tax and invest the remaining amount in good equity mutual fund.
With New taxation for NPS on maturity you can invest in NPS to take tax benefit u/s 80CCD(1B). We redid our calculations which you can check in hte link below.
Also Read: Should you Invest Rs 50,000 in NPS to Save Tax u/s 80CCD (1B)?
Why you should not invest in NPS?
Below are some investments that I would recommend to stay away as they have poor returns and/or can hold you in complicated tax tangles. Also you would hear multiple horror stories on how these investments were miss-sold and people are now struck.
Unit Linked Pension Plans (ULPP) is offered by insurance companies as a investment to take care of your retirement. The broader product structure is, you invest in the product for first few years and then the insurance company pays you some lump-sum amount and then a regular annuity after certain period.
Why you should not invest in ULPP?
ULIP and endowment plans are other investment which is miss-sold very often. People do not understand the complex product and later suffer heavily.
Why you should not invest in ULIPs?
As said earlier the best tax saving investment is different for different people and is aligned with their return expectations, risk taking ability, personal circumstances, and alignment with their financial goals among other things. So you must choose product that suits your above requirement. Also the ranking done by me may not suit you but you would do good to stay away from ULIPs, Endowment Plans and Pension Plans (ULPP). Go ahead and save tax!
Everyone hates paying taxes and always are on lookout for Options to Save Tax. However…
Are you worried and confused about Lien amount in SBI? Well you are not alone.…
Get details of latest Sovereign Gold Bond Price, Issue details, taxation and how to invest.…
Download the Excel based Income Tax Calculator India for FY 2020-21 (AY 2021-22). This compares…
Piramal Capital & Housing Finance, has come out with Piramal Capital & Housing Finance Ltd…
IIFL Home Loan, the Housing Finance company from IIFL Group has come out with IIFL…
View Comments
Dear Sir,
I am salaried person, having income of 15L annually.
i am doing investment of 1,50,000 towards 80C in various types. My age is 54.
Is it beneficial to open new NPS account and get benefit of Rs 50000/- under 80CCD(1B) ?
Sir kindly provide some best Term Plans for me. My age- 34 DOB- 08-11-1983. Thank you..
SIR
Say my grandfather is no more and there are numerous investmentin joint name like nsc fd kvp and others..now they are maturing in the year 2018-2019..so is the income received on maturity taxable in the name of other joint holder or they will be normaly shown in balance sheet and my capital figure will increase..
ELSS schemes are the best for people who prefer lower lock-in periods and higher tax free returns.
pl suggest top 5 ELSS schemes for 2017
Here you go - Best ELSS Funds for 2017
sr citizen scheme avalibele benfit 80c rs 1,50,000/-
Hello Sir,
I am a salaried person of 11.09 Lacks p.a. I purchased my first house in the name of my parents. But I have taken a home loan of 8 lacks for the house in parents name. Last Feb 2016, I paid the loan fully and closed the account. It was rented for 7500 p.m. Recently I have booked another flat in the name of me and my wife (who is right now a house wise with no income source). Took a home loan of 30 Lacks with HDFC Bank with the scheme that after possession on Dec 2018, I have to start giving EMI. Right Now I am residing with parents another old house. My question are that:
1. Can I claim HRA by paying rent to parents for residing with them in their another old house? How much amount can I claim for tex deduction on HRA?
2. Parents took home but took loan in my name and fully paid my me. Is that home will be consider as my 1st house as loan in my name?
3. If earlier flat will be consider as my first house then for my second house how much amount can be claimed for tax deduction under sec 24 & sec 80C
Regards,
Mainak Das
The home loan benefit is available only if the house in the tax payers name (jointly or singly). It does not matter who pays the loan. Here are answers to your queries:
1. Yes you can pay rent to your parents as per market rate of similar house and claim HRA tax benefit. There is no limit on how much rent you can pay. But remember this rental income will be added to your parents income (whoever is the owner of the house) and taxed accordingly.
2. If the house is not in your name then you do not own the house even if you paid the loan. So this is not your first home.
3. The new house you bought is your first home and you can claim tax benefit as such.
Let me know if you have more queries.