Save on tax next year by investing in these schemes today
Managing finance and investments has become much more complex today than it ever was. Inflation has made it difficult to fulfil even the basic minimum needs such as buying a flat or children’s education. Couple that with several investment options available in the market, deciding where to put your money can be a daunting task.
The recent flip flop on Employees Provident Fund (EPF) deposits – the Finance Ministry had approved 8.7% interest on EPF deposits, lower than the 8.8% decided by the Central Board of Trustees before rolling back to 8.8% after trade unions across the nation warned of protests – has brought the pertinent question back to my mind. 'Where do I invest?'
Here are some of the government-backed investment options that you can consider for good returns.
With interest rates on EPF deposits back to 8.8%, this is a good investment option. There is a demand to hike it to 8.9% and according to the labour minister interest rates could be subject to revision later.
Sukanya Samriddhi Account
This is a part of the government's 'Beti Bachao aur Beti Padhao' movement. It was launched on January 22, 2015. By investing in this scheme, you will be eligible to annualised returns of 9.1%. The rate of returns has been increased to 9.2% for the financial year 2015-16. The interest rate offered under the scheme is subject to revision and will be compounded every year.
Mutual Funds ELSS
Did you know that you can get tax benefits by investing in mutual funds? Tax benefits under Section 80C are allowed for an investment in specially-designed mutual fund schemes called ELSS (Equity-linked savings scheme).
Under this, you can save up to Rs 1.5 lakh under Section 80C and also get a chance to earn potentially higher returns with the lowest lock-in period at three years. This is the lowest compared to any other tax-saving investment scheme.
The returns on mutual funds will be linked to the markets, but if you stay invested for the long-term, on an average, it is possible to get around 15-20% returns on an annualised basis (based on stock market historical data).
But if tax saving if not your criteria, then you can optimise the investments and amass great returns, specially at a time when India is set to grow rapidly in the next few years, I will share a detailed post on this in my next column.
National Pension Scheme (NPS)
National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme designed to instil the habit of saving for retirement. Under the NPS, your savings will be invested in a pension fund by Pension Funds Regulatory and Development Authority (PFRDA)-regulated professional fund managers with the approved investment guidelines. The portfolio will be diversified, comprising of government bonds, bills, corporate debentures and shares.
Your contribution towards NPS investment is eligible for a deduction under section 80C up to a maximum limit of Rs 1.5 lakh and your Employer’s contribution is allowed under Section 80CCD(2). Employer’s deduction is over and above the deduction under Section 80C.
Public Provident Fund (PPF)
PPF is one of the best government-backed long-term small savings scheme that was introduced to help people save for retirement, specially the self-employed. One can invest up to Rs 1.5 lakh per annum in their PPF account and also avail tax benefits under Section 80C of the Income Tax Act.
You can also open PPF accounts in the name of your spouse and children. The best part is tax-free returns on maturity, which makes this a great investment tool.
Different government schemes offer different returns and caters to different strata of our society. So think wisely before investing in any of these schemes to optmise your returns as well as tax benefits.
Rishabh Parakh is a Chartered Accountant and the Chief Gardener & Founder Director of Money Plant Consulting, a leading Tax & Investment Planning Advisory Service Provider. He also runs a personal finance blog called “Mango Investor” aka AAM Niveshak at www.mangoinvestor.com. Readers are invited to send their feedback to firstname.lastname@example.org.