4 alternative tax saving instruments

Benjamin Franklin had once quoted that there are only two certainties in life:

Death
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&

Taxes


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It would be both morbid and unrelated to write about 4 types of death.

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So let us stick to writing about 4 types of tax saving instruments for you to consider:

ELSS: 

ELSS stands for Equity Linked Savings Scheme
This is presently the best tax saving instrument in India
The benefits of ELSS are:

  • Investing in it helps you to claim exemption of upto Rs 1.5 lakhs under section 80C
  • Across a 3-5 year period, it offers better returns than a Public Provident Fund
  • Over last three years the ELSS category has offered more than 15% returns (Source: http://www.moneycontrol.com/mutual-funds/performance-tracker/returns/elss.html)
  • Despite a lock in period of 3 years ELSS offers higher liquidity than PPF or NSC

ULIP:

Due to mis-selling ULIPs have ended up getting a bad name. There are many who do not even wish to explore this instrument.  Earlier there was no cap on fees and other management charges. Since commissions that were offered on selling ULIPs were very high they were often mis-sold.
ULIPs are best used for milestone centric planning. They have a lock-in period of 5 years. After the lockin period is lapsed, one can make partial withdrawals not exceeding 20% of the fund value of the policy.
The benefits of ULIPs are:

  • Premium invested upto Rs 1.5 lakh is tax deductible under section 80C of the Income Tax Act
  • It allows the policy holder to not only choose a preferred asset class but also switch between them. So initially the ULIP can be skewed towards equity and later allocation can be made towards debt
  • The insurance cover that it offers.

Sukanya Samriddhi Scheme:

This not only encourages the growth and progress of girl children but also helps in financial planning. This is nothing but a small savings scheme. Historically the girl child has been perceived as a burden in Indian society. The Sukanya Samriddhi Scheme has been created to assist in the destruction of this heinous belief.
The benefits of Sukanya Samriddhi Scheme are:

  • The account can be opened with a small amount -> an initial deposit of Rs 1000 is enough after which one needs to deposit in multiples of Rs 100 subject to the maximum limit of Rs 1.5 during the financial year
  • The account can be transferred to anywhere in India
  • This scheme is 100% tax free which means exemption will be offered during deposit, growth as well as withdrawal
  • It provides the highest rate of interest among all savings schemes in India. The government sets the rate every year. For 2016-17 the interest rate is 8.6%.

Senior Citizen’s Savings Scheme (SCSS):

For all you seniors out there, do not fret about the bank interest rates falling down. There is still a ray of hope! To invest in this scheme one must be atleast 60 years. There can be an exception made and the eligibility can be 55 years in case the individual has taken a VRS (Voluntary Retirement Scheme). VRS takers must open the account within a month of receiving their retirement benefits and the amount invested in this scheme cannot be more than one’s retirement corpus.
The benefits of Senior Citizen’s Savings Scheme are:

  • Rate of interest offered is 100 basis points more than the 5 year government bond yield
  • This year the rate defined has been 8.6% pa
  • The interest is paid out every quarter on the first working day of April, July, October and January.
  • The investment made is exempted from tax under Section 80C however the interest earned is completely taxable.
As tax season is almost coming to a close these instruments might make you evaluate your tax management for this fiscal!

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