With the COVID-19 pandemic and the evolving scenario, investors are now re-evaluating their investment portfolio. Thus, tax-saving instruments in 2020 might witness a shift in priorities. Under Section 80C of the IT Act, 1961, an investor can claim a tax deduction of up to Rs 1.5 lac p.a. These deductions are eligible for different types of investments such as Public Provident Fund (PPF), Equity-Linked Savings Schemes (ELSS), and National Savings Certificates (NSC), etc. Let’s understand these investment options in detail.
National Pension Scheme (NPS)
It is a retirement-focused scheme that matures when one turns 60 years. Among various options under NPS, an investor can invest a maximum of up to 75% in equity funds and the balance in debt funds. Investments in NPS is eligible for tax benefits up to Rs1.5 lac under Section 80C of the Income Tax Act. An investor can also avail additional tax benefits of up to Rs 50,000 under sub-Section 80CCD (1B) of the IT Act, 1961.
Tax saving mutual funds – ELSS funds
Equity Linked Saving Schemes (ELSS) are tax-saving mutual funds that invest a majority of their corpus in equity and equity-related instruments. ELSS mutual funds have one of the lockest period of just 3 years than other Section 80C investment options. There are a lot of benefits of investing in ELSS. One of them being that it offers dual benefits of tax deductions and capital appreciation. Investments in ELSS funds are eligible for tax deductions of up to Rs 1.5 lac u/s 80C. An investor can save up to Rs 46,800 every year by investing in ELSS funds.
Tax saving bank fixed deposit (FD)
Tax saving FDs are provided by various banks and financial institutions. These investment options carry a fixed rate of interest. The investment tenure of a bank FD is 5 years. These scheme do not allow any partial withdrawal before the completion of lock-in period.
Public Provident Fund (PPF)
PPF scheme are backed by the Government of India. These schemes offer safety and attractive rate of returns that are fully exempted from tax. The scheme aims to collect small savings by providing an investment which is endowed with reasonable returns mixed with income tax benefits to investors.
Unit-Linked Insurance Plan (ULIP)
ULIP is a combination of insurance plus investment. These are insurance policies that offer investors the opportunity to create wealth while simultaneously giving them with the security of a life cover. These schemes have a lock-in period of 5 years. The premium paid towards ULIPs is eligible for deduction under section 80C for up to Rs1.5 lakh p.a.
Senior Citizen Savings Scheme (SCSS) – It’s a government-backed savings scheme available to Indian residents aged 60 years and above. The maturity of this scheme is five years, although it could be extended by three years. The interest rate is declared at the time of buying the scheme. SCSS schemes also provide tax benefits of up to Rs1.5 lac u/s 80C of the Income Tax Act, 1961.
Planning taxes isn’t rocket science. Nevertheless, investors should try and not take it for granted, either. Also, try to not invest with the sole purpose of saving tax. As an investor, you must ensure your investments are in line with your financial goals and objectives, risk profile and investment horizon. Happy investing!