Demo

    Photo:FILE income tax

    Tax Saving Investments: As the month of March approaches, taxpayers often start looking for various tax saving options, but along with various options, it is also important to know which tax saving scheme is better in terms of returns and providing immediate cash when needed. Is. Tax experts say that among the tax saving options included under Section 80C of the Income Tax Act, ‘Equity Linked Saving Scheme’ (ELSS) is a better option. Tax experts also say that to reduce the tax burden, apart from saving Rs 1.5 lakh under Section 80C, a person should also avail NPS benefits under Section 80D (Health Insurance) and Section 80CCD.

    This is a better option

    Additional tax exemption can be claimed on contributions of Rs 50,000 to the National Pension System (NPS). When asked about the better option among various tax saving schemes like NPS, ELSS, National Savings Certificate (NSC) and Life Insurance Policy (LIC), Anand Rathi Wealth Ltd. “If it comes to claiming tax benefits under Section 80C of the Income Tax Act, my choice is Equity Linked Savings Scheme (ELSS),” said Chintak Shah, vice-president, ICICI Bank. Shah told PTI, “There are two main reasons for this – first, ELSS investments are directly linked to stock markets and have historically given long-term returns of about 11 to 12 per cent per annum. Second, the ‘lock in period’ under ELSS is only three years. That means you can withdraw your amount after three years.

    Why ELSS is an attractive option

    “This facility allows investors to withdraw their investment amount for consumption needs or reinvest it in a new ELSS to avail benefits under Section 80C,” he said. Thus, this combination of wealth creation potential and tax efficiency makes ELSS an attractive option,” said Vivek Jalan, partner at consultancy firm Tax Connect Advisory Services LLP. “The choice of investment option depends on one’s risk appetite. Depends on ability, need and goal. While the interest on products like NSC, PPF is fixed and is announced by the government every three months, the returns on products like ELSS are not fixed and their performance depends on the market condition.

    How much benefit in which scheme?

    It is noteworthy that the investment and savings products covered under 80C include ELSS, PPF (Public Provident Fund), Sukanya Samriddhi Yojana, NSC, Life Insurance etc. At the same time, NPS comes under section 80CCD. The ‘lock in’ period of PPF is 15 years, while the ‘lock in’ period of NSC is five years. At the same time, under Sukanya Samriddhi Yojana, the lock-in period is till the girl completes 18 years and till the LIC maturity period. If we talk about interest and returns, currently it is 7.1 percent on PPF and 7.70 percent on NSC. For Sukanya Samriddhi Yojana it is 8.2 percent and in case of LIC it sits around five to six percent.

    You can get additional tax exemption from NPS

    Asked about tax saving measures other than Section 80C, Shah said, “Taxpayers can claim additional tax exemption under Section 80CCD (1B) by contributing Rs 50,000 to NPS. This will further reduce their taxable income.” He also said that although the investment in NPS is for a long period, it lacks complete liquidity i.e. cash. Therefore, individuals should evaluate this option carefully before adopting it. Regarding this, Jalan said, “Investing in NPS helps a person to save additional tax up to Rs 50,000. This is one of the major tax saving schemes for taxpayers, employees and self-employed people falling under the new and old tax regime.

    Partial Withdrawal Facility

    He said that there is a facility for partial withdrawal from NPS which depends on the prescribed circumstances and criteria. Also, the amount withdrawn is eligible for tax exemption if the self-contribution is up to 25 percent. Apart from this, tax exemption is also available on lump sum withdrawal of 60 percent of the accumulated NPS corpus on reaching the age of 60 years or retirement. Pension products have to be purchased from the remaining 40 percent amount. If we talk about returns, according to Pension Fund Regulatory and Development Authority (PFRDA), investment in equity under NPS has received returns of more than 12 percent since its inception. Whereas in the case of government employees, returns from NPS have been up to 9.4 percent. Responding to a question, Shah said it is important to ensure that the taxpayer makes full use of all eligible deductions. For those opting for the old tax regime, this includes the maximum deduction under sections 80C and 80D (health insurance and precautionary health care). Apart from this, taxpayers can also claim losses incurred due to the recent decline in the capital market in their returns. This can help them reduce tax liability on other capital gains.

    Latest Business News

    Share.

    Leave A Reply