Best Tax-Saving Scheme u/s 80C
The first step towards Tax Planning is to look out for tax-saving instruments which are eligible for deduction under section 80C. The deductible investment list is exclusive with a threshold limit of Rs.1,50,000. This restriction makes it utmost necessary to opt the best tax-saving scheme not only to save tax but also to increase your wealth also.
Recommend Read: Deductions under section 80C
When we talk about section 80C, the first thing that comes into the mind is Tax-Saving Banking Fixed Deposit, apart from this there are few other options which gives neck to neck competition to Bank FDs. Below I have listed few of the most popular tax saving schemes under section 80C.
- Kisan Vikas Patra
- Public Provident Fund
- Tax-Saving Bank FD
- National Saving Certificates
Let’s dive into the details on each of the instruments:
Kisan Vikas Patra:
Revamped Kisan Vikas Patra was launched yesterday with annual yield of 8.7%. Investment in KVP will get doubled in 100 months but no withdrawal can be made up to 2.5 years.
With no tax benefits on money invested as well as interest accrued, this scheme seems to lose its charm this time.
Recommended Read: Highlights of Kisan Vikas Patra 2014
Public Provident Fund:
Being EEE PPF is by far one of the best tax-saving instruments, if time period is not an issue for investor because the lock-in-period of PPF is almost thrice of any other scheme i.e. 15 years, although money can be withdrawn prematurely but only up to 60%.
The Rate of Return of PPF for year 2014-15 is 8.7% with tax benefits on the invested amount, accrued interest as well as for amount obtained at maturity.
Recommended Read: Everything on Public Provident Fund
Tax-Saving Bank Fixed Deposit:
Bank Fixed Deposit is Safest and most trusted tax-saving instrument under section 80C. Bank FD gives return at the rate of approx 8.5% (Know: Tax-Saving FD Rates of Various Banks) with a maturity term of 5 years. Unlike other tax-saving instruments Bank FD can be easily broken (encashed) in the case of emergency without much reasoning. Banks usually charges a penal interest for early payment but whole money can be withdrawn. The major drawback is the Bank FD is taxation part, tax is payable on the maturity amount.
Last week limit of deductible amount u/s 80C for Bank Fixed Deposit has been increased to Rs.1.5 lakhs (earlier it was Rs.1 lakh).
Recommend Read: Save TDS on Fixed Deposit Interest
National Saving Certificates:
In the Budget 2014, National Savings Certificates was modified by incorporating Insurance Feature under which if the investor dies before maturity than the legal heirs will be given a certain amount of invested amount before the maturity and remaining amount will be paid on the maturity.
The NSC comes in two tenure 5 years and 10 years while former gives annual return of 8.6%, later provides 8.9% but the benefit of the NSC is the calculation of return. While all other instruments bears an annual compounding, NSC gives half-yearly compounding.
Let’s say if you invest Rs.1 lakh at interest rate of 8.8% per annum compounded annually, than the return after 10 years would be Rs.2,32,428 while in case of half-yearly compounding you would be getting Rs.4,000 more i.e. Rs.2,36,597.
However this extra benefit does not hold strong because the interest earned is taxable.
Recommended Read: Get Insurance Cover with National Savings Certificates
PPF vs. Bank FD vs. KVP vs. NSC
Final Words of Wisdom
The decision on selecting the best tax-saving scheme revolves around the time period. If investor is comfortable with the long-term period than he should definitely go for PPF scheme because there is no taxation on the earning and the rate of return is almost equal to every other instrument. Another benefit is that Government also revises rate of return of PPF each year, so the deposit does not get locked on the same interest rate for whole time period like in Bank Fixed Deposit.
Recommended Read: Why not to Invest in Kisan Vikas Patra 2014?
In case investor does not want to invest for long-term and looking for shorter term of 5 years than National Saving Certificates is the scheme to choose. Both Bank FD and NSC have same taxation and give same return but interest is compounded half-yearly in NSC while yearly in Bank Fixed Deposit.
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