The first reminder to submit your proofs for tax-saving investments must have come around January this year or perhaps even earlier, in December last year. But you were busy, or simply lazy and didn’t heed the reminder then or when your salary cheques in the next two months got thinner. And now when the deadline for making tax-saving investments is less than a week away, you’ve suddenly realized that if you put it off now, it will be too late.
However, in the last-minute rush, chances of falling in for the agent’s spiel and making a mistake are very high. We come to your aid at this juncture to help you pick the right products from the 80C basket.
We are assuming your employer is already deducting 12% of your basic salary towards Employees’ Provident Fund. That should cover a major chunk of your 80C deduction window. Other options you could look at.
Public Provident Fund (PPF): A must for every portfolio, PPF offers a tax-free return of 8% per annum over 15 years. You can invest up to Rs70,000 in a year. This investments works for you irrespective of whether you need the tax break or not.
Where to buy: At post offices or notified branches of state-run banks, including State Bank of India. You don’t need to have an account with the bank to open a PPF.
National Savings Certificate (NSC): It is a six-year small savings instrument that pays 8% compounded half-yearly. Keep in mind that the interest accrued every year is taxable. But since the interest is also reinvested, it becomes part of the overall section 80C contribution.
Where to buy: At all post offices.
Senior Citizen Savings Scheme (SCSS): It is a good investment avenue for the retired. Those above the age of 60 years (in case of voluntary retirement, above 55) get tax benefit, too. You get an interest of 9% per annum, payable quarterly, and the investment tenor is five years. You can invest up to Rs15 lakh for five years, but keep in mind that the interest income is taxable.
Where to buy: All post offices or select branches of ICICI Bank Ltd.
Five-year tax-saving bank fixed deposits (FDs): If you invest in schedule banks’ tax-saving fixed deposits (FDs) having a tenor of five years, you will get a deduction. Remember that each bank’s FD will offer a different rate of interest; if you are a senior citizen, you will earn a 0.50% higher rate of interest. But keep in mind that you have to be invested for five years and premature withdrawals are not permitted. Also, interest income is taxable.
Where to buy: At any commercial bank. Do check the rates since they vary from bank to bank.
Five-year post office time deposit scheme: This is just like a bank FD. You can invest for tenors of one, two, three or five years, but only five-year schemes are part of the tax-saving basket. They offer 7.5%, compounded quarterly but paid annually. The interest is entirely taxable. Also, keep in mind that the post-tax return is 5.18% for those in the highest tax bracket.
Where to buy: At post offices.
Infrastructure bonds: They give an addition deduction of up to Rs20,000 under section 80CCF; this is apart from the Rs1 lakh limit under section 80C. This is a long-term investment with a minimum lock-in period of five years. The Rs20,000 tax deduction limit that Budget 2010 made available, has just been extended for one more year.
Where to buy: Financial distributors and agents.
Equity-linked savings schemes (ELSS): These are diversified equity mutual funds that can give a kicker to your portfolio, but carry market risk. These come with a three-year lock-in. You can either invest as a lump sum or via a systematic investment plan (SIP) but remember the lock-in when investing in an SIP. Each SIP instalment gets locked in for a period of three years. On average, if you had invested in ELSS five years back you would have got returns of 8.28% and for 10 years the returns would have been 22.05%.
Where to buy: Directly from mutual fund websites, banks, financial distributors or agents. But to invest, you need to be know-your-client (KYC) compliant. If you are new to MFs, you will have to get your KYC done which may take time and hence may not be able to invest before 31 March.
Life cover: Any amount you pay as life insurance premium for yourself or your family (spouse and children) comes under the 80C umbrella. Buy a term insurance policy; it’s the cheapest and the simplest.
Where to buy: From an agent. Some term plans are offered exclusively online and are cheaper than normal ones.
Traditional pension plans: These qualify for tax benefit under section 80CCC. However, remember that the total deduction allowed under sections 80C and 80CCC can’t exceed Rs1 lakh. Keep in mind that annuity, the pension amount you receive after maturity, is taxable.
Where to buy: From an insurance agent.
Apart from the above mentioned investment avenues, you also get deduction under 80C for tuition fees incurred for your children full-time education in India. Repayment of principal of your home loan gives you a deduction under 80C of up to Rs1 lakh.