If you have been following DialaBank world, by now your task of claiming tax benefits would be more and you would have gathered all the investment proofs and premium receipts and given to your organization, but if you were busy with your work, then you must be struggling to do so, to be in a situation to claim tax up to Rs 1 Lakh under section 80C and thus save some money.
The following are six financial products that will not only help you with saving on tax but also for sound investment and insurance choices that fit your overall financial plan.
Employers Provident Fund or EPF is a long turn investment scheme for Salaried Individuals. You and your employer put 12 percent of your income into the EPF account on a monthly basis. It is necessary for employees to have a basic salary of Rs. 6500 p.m, for those earning above this limit, this contribution is voluntary.
Your contribution up to 12 percent is qualified for tax deduction up to Rs 1 Lakh. From the employer’s contribution, around 8.33 percent goes to the EPS i.e. Employees Pension Scheme, which provides a pension for life from the age of 58 years. The remaining amount gets interested at a rate charged by the EPFO(Employees’ Provident Fund Organisation) each fiscal. This fiscal, the rate is 8.75%.
Employees’ Provident Fund
In the case of EPF, the interest you earn and the amount you get is tax-exempt, in case you withdraw your EPF after 5 years. PDF not only gives you the tax benefits but also saves money for your retirement.
Public Provident Fund
Public Provident Fund is a scheme for the employed, self-employed, or unemployed. Under this scheme, PPF retunes are pegged to the average yield of government securities of similar maturity from the preceding year with a positive spread of 25 basis points every year. This rate is declared before 1 April each year for the following fiscal. For FY14, the rate of interest on PPF is 8.70%.
The money you contribute is qualified for the tax deduction of Rs. 1 Lakh. On maturity, the proceeds too would be tax-free. PPF is a 15-year product that requires you to make annual investments- minimum Rs. 500 and maximum Rs. 1 Lakh. It can be extended in parts of 5 years.
PPF is one of the products that not only offer tax benefits along with the real rate of return over the long tenure. This product works best for long-term goals like buying a house, child’s education, making down payment, and marriage.
ELSS is mandatory if you seek equity exposure along with section 80C tax kick. It is a scheme that invests across scrips and sector like any other diversified equity mutual fund. The main difference is that it offers tax benefits up to Rs. 1 Lakh along with three years of the lock-in period. After three years, you are free to exit or stay invested to enjoy equity returns over a long period of time.
If you have dependents like – parents, spouse, and children, then Insurance Cover is for you. The premium that you need to pay for such policies qualifies for a tax deduction so long as the sums assured or insurance cover is at least 10 times the annual premium. Term Plan is a good option as it charges only for the insurance part with no investment returns at the end of the term.
The term plan offers a large cover for a relatively lower premium as compared to other policies and provides only insurance.
National Pension System
This scheme is designed only for retirement savings and has a lock-in till 60 years of age. It restricts equity investment to 50% making it fitter for conservative investors or those who want balanced investments.
According to the Pension Fund Regulatory and Development Authority Act, 2013, draft guidelines have been issued to allow withdrawal of up to 25% of contributions for events such as buying a house, further studies, and medical emergencies. The final guidelines are still awaited.
You can start with the contribution of Rs. 6000 in the funds on an annual basis. There are three offers you can choose from:
- first has an equity exposure of up to 50%;
- the second invest fixed income instruments other than government securities; and
- the third one invests in government securities.
The contribution that you make is qualified for the tax benefits of up to Rs. 1 Lakh under Section 80C.
Five-year fixed deposits
If you are in a lower tax bracket or need guaranteed income, then Fixed Deposits that come with 80C benefit is the best option. But you need to keep in mind the age, investment horizon, and goals.
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