What are the best investments to avail deductions for Income Tax

What are the best investments to avail deductions for Income Tax

Dear friends, the month of January is already here and less than three months are left with tax payers so that they can invest and save there taxes.

While making an investment, tax savings should not be only sole purpose. But we need to keep other things in mind such as, what is the return of investment, what is the lock in period, what would be the tax implications when investment is redeemed, what is the risk involve in the investment etc.

I am suggesting some of the best Investment options, which I find lucrative for tax saving as well as earning good interest.

What are the best investments to avail deductions for Income Tax

1.) Equity linked saving Scheme or ELSS

Rating : 5 Star

Interest Not Fixed
Minimum Investment Requirement No Specific Requirement
Maximum Investment that can be made No Specific Limit
Features

The investment has minimum lock-in period of 3 Years

Investors may choose between dividend or growth option available.

Dividend option can be used by investor who needs to have regular Income where as Growth Option is for person who need to save for long term.

Tax Benefit Deduction of 80C is available

Tax Considerations of Income earned out of ELSS Scheme

From April 1, 2018 any LTCG made on transfer of equity MFs that have an equity exposure of 65 per cent or more including Equity-linked savings schemes (ELSS) will have to pay a 10 per cent tax on long-term gains. It is important to note that gains made above Rs 1 lakh per annum will only be subject to tax and any gains made below that limit in one FY remains tax-exempt.

2.) Public Provident Fund or PPF

Rating : 4.5 Star

Interest 8.00%
Minimum Investment Requirement Rs. 500/-
Maximum Investment that can be made Rs. 1,50,000/-
Features The investment has minimum lock-in period of 15 Years
Tax Benefit Deduction of 80C is available

Tax Considerations of Income earned out of PPF Scheme

PPF interest is Exempt form Tax

3.) Senior Citizens Saving Scheme or SCSS 

Rating : 4.5 Star

Interest 8.50%
Minimum Investment Requirement Rs. 500/-
Maximum Investment that can be made Rs. 1,50,000/-
Features The investment has no specific Lock-in period. However If the account is closed before two years, the investor has to pay 1.5% of the balance in the account. After two years, the penalty is lowered to 1% of the balance. 
Tax Benefit Deduction of 80C is available

Tax Considerations of Income earned out of SCSS Scheme

The interest earned from the SCSS is fully taxable as income. 

4.) Sukanya Samriddhi Account or SSA Rating

Rating : 4 Star

Interest 8.50%
Minimum Investment Requirement 250
Maximum Investment that can be made A parent can open an account for a maximum of two daughters, but the combined investment in the two accounts cannot exceed Rs 1.5 lakh in a year. 
Features

The account shall mature on when the Girl child completes her 21 years but if her marriage takes place before being 21 years then it shall be deemed as mature.

Read this article on SSA Account for learning complete features of this scheme

Tax Benefit Deduction of 80C is available

Tax Considerations of Income earned out of SSA Scheme

The interest earned from the SSA is fully Exempt from Tax.

5.) National Pension Scheme or NPS Rating

Rating : 4 Star

Interest 4-10%
Minimum Investment Requirement 500
Maximum Investment that can be made No Specific Limit
Features

Limit for maximum deduction available u/s 80C, 80CCC, 80CCD+80CCD(1B) is Rs. 2 Lakh

The Lock-in period of NPS is till retirement

Tax Benefit Deduction of 80C is available

Tax Considerations of Income earned out of NPS Scheme

The present Tax consideration of NPS has been explained through below mentioned image

However as per MOF press release dated 10th December 2018, there is a proposal that Tax exemption limit for lump sum withdrawal on exit should be been enhanced to 60%. With this, the entire withdrawal will be exempt from income tax. This will be applicable only when notification is made by the MOF.

6.) Bank FD of 5 Years

Rating : 3 Star

Interest 5.5% – 7.5%
Minimum Investment Requirement 500
Maximum Investment that can be made No Specific Limit
Features The investment has minimum lock-in period of 5 Years
Tax Benefit Deduction of 80C is available

Tax Considerations of Income earned out of Fixed Deposit

The interest earned from the Fixed deposit is fully taxable.

7.) Life Insurance or LIC Rating

Rating : 3 Star

Interest 0-6%
Minimum Investment Requirement No Specific Requirement
Maximum Investment that can be made No Specific Limit
Features The investment has minimum lock-in period of 5 Years
Tax Benefit Deduction of 80C is available

Tax Considerations of Income earned from Insurance

The income earned from insurance is exempt.

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. In no event shall I shall be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information








Author Bio
Name : Pratibha Goyal
Qualification : Chartered Accountant
Company Name : Studycafe.in
Designation : Chartered Accountant
State: Delhi
City : Delhi
Bio : The Author is a qualified Chartered Accountant. For any queries comment below. All your Queries will be addressed. You can also ask your queries on https://studycafe.in/forums

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