HOW TO AXE YOUR TAXES
Hot tip: Look beyond ‘investments’ eligible for tax deduction
This piece of advice is trotted out once every year as the financial yearend approaches. So here goes: it’s best to plan your tax-saving investments earlier, and stagger some of the investments over the year. And if it’s tax savings you seek, first count in the eligible payouts, on which tax deductions may be claimed to reduce the overall tax burden.
Equity Linked Savings Schemes (yearend):
These mutual funds invest in equities with a lock-in period of three years. It’s a good option if you want to save tax as well as grow your money as they mostly deliver the highest returns among tax saving instruments. There is no tax if you withdraw the money after the lock-in period. In the past one year, the average return of ELSS has been around 42 per cent, while the three-year return has been around 15 per cent.
Unit Linked Insurance Plans (ULIPs):
These insurance plans provide the benefit of both investing in equities and insurance. The lock-in period is five years and the returns depend on the performance of the underlying instruments. If the premium paid on the policy is less than 10 per cent of the sum assured for policies purchased after April 2012 and 20 per cent before that, the amount received on maturity is exempt from tax. For premium higher than 10 per cent, the entire amount is added to the income and taxed as per one’s income tax slab.
Public Provident Fund (PPF):
You can start by investing as little as Rs 500 a year and go up to Rs 1.5 lakh a year. The interest rate of the PPF depends on the yield of government securities of the same maturity. The lock-in period is 15 years and partial withdrawal is possible after seven years. The investment, gains and withdrawals are completely tax-free. It is a highly recommended tax saving product for those who fall in the 30 per cent tax bracket. The latest rate of interest on PPF is 7.6 per cent for the quarter ending March 31, 2018. National Savings Certificate (NSC): It comes with a lock-in period of five years and is currently offering 7.6 per cent return. Similar to other small savings schemes, the rate of return depends on government securities of the same maturity. Interest is added to the income of the investor and is taxed, reducing the effective return of
ELSS IS A GOOD OPTION IF YOU WANT TO SAVE TAX AND GROW YOUR MONEY TOO AS IT DELIVERS THE HIGHEST RETURNS IN TAX-SAVING INSTRUMENTS