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Many options, Many advice, and a deadline approaching fast, many taxpayer have to make investment. Are you confused?  Before you invest in a tax saving instrument just go through the cover story to choose which option is best for you. Under mention the below are the most common investment under section 80c on five basic parameter:-  investment, safety, flexibility, liquidity and taxability.

Public Provident Fund

Rating: 8.7%(for 2013-14)

PPF  is the  top choice as a taxpayer in the year 2014. This year PPF will earn 8.7%. 25 basis above the average benchmark yield in the previous fiscal year. Benchmark yield raised in July and mostly remained above 8.5% in the past six month. So it is reasonably to expect that the PPF would be hike margin in 2014-2015.

PPF offers  lots of flexibility, the maximum  investment of Rupees 100000 can be made any time in the year in a lump sum or in instalment make sure the minimum investment must be rupees 500.Whenever you need the money you can withdraw after the fifth year, but withdrawal should not exceed 50% on the balance at the end of the fourth year or the  immediate preceding year whichever is lower only one withdrawal is allowed in the financial year you can also take loan against PPF.

ELSS FUND

Rating: 17.5%(for past five years)

ELSS are at the Second place in the ranking. ELSS fund generate good returns for investor in the long term but high returns comes with a high risk. In the part five year ELSS funds give average return of 17.5%. There is  no guarantee  that your investment will give good return after the three year  lock in period . Even the best performing churned out disappointedly result for the past three year. These returns depend upon the performance on the stock markets. Minimum investment is very low you can put as little as rupees 500 in an ELSS fund , ELSS funds offer  flexible, since there is no tax gain from equity funds after a year, investor can easily recycle his investment every three year and claim tax benefit on the reinvested amount.

ULIPS & NPS

Rating:4.2-11.8%( Past 3 years)

ULIPS  should not be your first insurance policy, you can buy one as an investment to save tax. The return is not very good for the past five years. But it is not necessary that u invest in equity linked investment you can also invest in debt fund and switch to equity when the market prospects looks rosier, only ULIPS allow you to switch from equity to debt and vice versa without any capital gain tax.NPS low cost structure, flexibility, and other features makes an ideal investment for retirement planning. One of  the most outstanding features of  the NPS is the ‘lifecycle fund’. Under this option, the investor’s age decides the equity exposure. The 50% allocation to equity is reduced every year by 2% after the investor turns 35, till it comes down to 10%.if you want to save tax through NPS get ready to do a lot of paperwork and legwork

NSC AND BANK FUNDS

Ratings:8.5-10%(for 2013-14)

Many taxpayers think that up to `10,000 interest from bank  deposits is tax-free, as announced in the budget two years ago. But the newly introduced Section 80TTA gives a deduction of  up to 10,000 on interest earned in the savings bank account, not on FDs and recurring deposits.  The interest earned on deposits  is fully taxable at the normal tax rate applicable to you. You have to mention this interest under the head ‘Income from other sources’ in your income tax return. So don’t get misled by the high interest rates offered on the 5-year bank fixed deposits. The post-tax yield may not be as high as you think. In the 20% and 30% income tax brackets, it is not as attractive as the yield of  the tax-free PPF.The second misconception is that there is no need to pay tax if  TDS has been deducted by the bank. You may have to pay tax even if  TDS has been deducted. TDS is only 10% (20% if  you haven’t submitted your PAN details), and if  you are in the 20-30% bracket, you need to pay additional tax.The interest on NSCs is also taxable but very few taxpayers include it in their returns. However, with the integration of  tax records, a taxpayer may not be able to escape the tax net easily. For instance, if  you have claimed tax deduction under Section 80C for investments in NSCs or FDs in one year, the tax department may want to know why the interest earned is not reflecting in your tax returns for subsequent years.

LIP

Ratings: 5.5-7.5%

Money back and endowment plans score low on flexibility scale.once you buy policy you have to pay premium for the rest of the term. This can be a problem if you buy a policy only to save tax. These policies are not as liquid as they appear. You can take loan against endowment policy from LIC and repayment can be done at your convenience. The IRR for the 10 year policy comes around 5.75%, for long term investment say 15-20 years IRR is better at 6.5-7.5%. for tax benefit 5 years NSC and FDS are better and simpler. If the taxability of income worries you go for PPF.


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Category Income Tax, Other Articles by - ESHA AGRAWAL 



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