Buy Tax Saving Mutual Funds Online (ELSS Funds)

Tax saving mutual funds (ELSS funds) are diversified equity funds that offer tax benefits to investors under section 80 C of the Income Tax Act up to an investment limit of Rs. 1,50,000 a year. Investors who buy tax saving mutual funds online or physically have a lock in period for 3 years. The returns are taxed at 10% if the capital gain from equity is greater than Rs 1 lakh in a financial year.

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Investment options to saving tax under 80C

· Investments in Public Provident Fund (PPF)

Deposits made during a year in PPFs earn a tax break under Section 80 C of up to Rs 1.5 laths. You get guaranteed interest by Government of India; however interest has been reduced to 7.8% since July 2017. PPF tenure is 15 years post which withdrawals are tax free. Premature withdrawals can be made in the form of loan against a PPF account.

· Investments in Employee Provident Fund (EPF)

Your contribution to Employee Provident Fund (EPF) account earns a tax break under Section 80 C of up to Rs 1.5 lakhs.12% of your salary is deducted by an employer and deposited in the EPF, however and interest rates on the EPF are gradually decreasing and have come down from 8.8% to 8.65% recently.

· Investments in Tax-Saving Fixed Deposits (FD)

Tax-saving FDs are regular FDs but with a lock-in period of 5 years. They give a tax break under Section 80 C on investments of up to Rs 1.5 laths.

Interest is market driven and different banks offer different rates, which in the current market would be around 6%. Returns are guaranteed and offer 100% capital protection; however, interest earned from them is taxable.

· Investments in National Pension System (NPS)

NPS is a pension scheme for unorganised sector and working professionals to have a pension. Investments of up to Rs 1.5 lakh can be used to avail tax deductions under Section 80 C.

The NPS offers different plans as per investors risk profile with the highest exposure in equities, which is capped at 50%. A major disadvantage of the NPS is that the proceeds upon maturity are taxable. Furthermore, there is no guarantee of the returns that can be earned from the NPS.

· Purchase of National Savings Certificates (NSC)

NSCs are eligible for tax breaks for investments of up to Rs 1.5 lakh under Section 80C.

NSCs can be bought from designated post offices and come with a lock-in period of 5 years however the returns are taxable

· Investments in Unit Linked Insurance Plans (ULIP)

ULIPs are a mix of insurance and investment which is invested in the stock market. Investments of up to Rs 1.5 lakh in ULIPs are eligible for tax breaks under Section 80C.

ULIPs don’t offer guaranteed returns because they are an equity market-linked product. The disadvantage of ULIPs is that they don’t offer clarity on where the investments are made and how much of the invested amount is deducted for commissions and expenses which is usually very high.

· Investments in Sukanya Samriddhi Yojana

Deposits of up to Rs 1.5 lakh can be added to a Sukanya Samriddhi Yojana account for tax saving under Section 80C

Deposits in this scheme have to be made for a girl child by the parent or a guardian. The interest is compounded annually and is fully exempt from tax. The Sukanya Samriddhi Yojana account matures in 21 years and partial withdrawal of up to 50% of the previous year’s balance is allowed after 18 years.

· Investments in Senior Citizens Savings Scheme (SCSS)

SCSS is exclusively for anyone who is over 60 years old or someone over 55 who has opted for retirement. The scheme has a maturity period of 5 years and gives returns of 8.6% per annum. Investments of up to Rs 1.5 lakh in SCSS can be made to save taxes under Section 80C.

ELSS a Clear winner among 80C investments

Other investments under Section 80C that earn a tax break:

· 5 year deposit scheme in post office

· Subscriptions of notified securities like NSS

· Sum paid to National Housing Bank’s Home Loan Account Scheme

· Contribution to notified LIC annuity plan

· Subscription to notified bonds of National Bank for Agriculture and Rural Development

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