Last-minute tips to save thousands in taxes!!!
Learn about different plans to make catch up contributions u/s 80C.
It is that time of the year again wherein we talk about Investment Declaration through Form 12BB. As you all know, Long term investments in line with financial goals lead to happy lives.
Now, we Indians are infamous for procrastination. We always tend to wake up and work at the last moment (remember those last-minute submissions in college). It is important to understand that the objective of declaring your investments through Form 12BB to your employer is that your TDS can be deducted accurately. Otherwise, you might end up paying penalties. And so here we are to give a gentle nudge and say — “Hey! Its time to submit your investment proofs to your employer”.
What is all this fuss about Form 12BB?
To simplify, its a way to declare your investments to your employer to avail tax deductions. Form 12BB is required to be submitted to the employer at the beginning of each year. Corresponding investment proofs are to be submitted by December each year.
The form consists of various deductions under Chapter VI-A i.e, 80C, 80CCC, 80CCD, 80E, 80EE…you get the point! Any amount you will pay towards pension funds, children’s tuition fees, medical expenditure, insurance premium, etc shall be declared to avail deductions. You can avail deduction up to INR 1,50,000 u/s 80C.
(Read all about tax deductions on Quicko’s Learn Center)
One thing we observed over the years is that many people tend to make hasty investments just to avail of tax benefits. But the persistent problem is that these investments are not in sync with their personal finance goals.
So, most of you must be knowing about different deductions and investment option that the government offers under 80C. Schemes like LIC, ELSS, Tax saving FD, PPF, EPF, NPS u/s 80CCD(1), NSC, ULIP, SCS Pension Fund by UTI and Investments in Sukanya Samriddhi Yojana.
But do you know how these investment options compare? Let’s dive deep and understand how they stack up with each other.
ELSS
ELSS must hold 80% of its funds in equity securities, it is apt for someone with higher risk appetite. The lock-in period is 3 years and investments made in the ELSS scheme are tax deductible u/s 80C. These funds are handled by experienced financial professionals. Thus ELSS is suitable for Investors with a longer time horizon & higher risk tolerance & also offers tax-saving components.
However, it is worth noting that returns in ELSS are taxed but historically have dwarfed returns from any other investment option under 80C.
Learn more about ELSS.
PPF
Public Provident Fund(PPF) is a long-term(15 years), low-risk investment that is backed by the government and falls under the EEE (Exempt, Exempt, Exempt) category. It means that the deposit, interest earned and withdrawal is exempt from Income Tax. PPFs approximately yield an 8% interest, this interest can also be reinvested as a part of principal investment. PPF allows account-holders to avail of a loan facility in the 4th and 6th year out of the credit amount between the 3rd and 5th financial year.
It is a classic example of Low-Risk, Medium Return. The lock-in period is 15 years and you can start investments with a minimum investment of INR 500. It is ideal for people with low-risk tolerance & a longer time horizon (for eg. retirement-planning or wealth accumulation). A fixed interest component & government guarantee is very attractive to investors with a conservative investment style.
Learn more about PPF.
EPF
Employee Provident Fund(EPF) is a defined contribution plan which is funded by the employee and the employer who matches the contributions made by the employee.
Typically 12% of the Basic Salary, DA (Dearness Allowance) have to be contributed to the EPF account. Any organization with 20 or more employees earning INR 15,000 or above can qualify for this scheme. EPF is a mandatory investment in the case of employees. Employees investing in EPF (an extremely low-risk Investment scheme) also tend to invest in high return schemes like ELSS and PPF to balance their portfolios.
It is worth noting that employees earned an annual interest of 8.65% in F.Y 18–19 through investment in PF. However, premature withdrawals for specified purposes, including housing and marriage are subject to being taxed. And the balance in employee's account is paid as a lump sum on retirement, or in case of a sudden crisis like permanent disablement or death.
Learn more about EPF.
NSC
National Savings Certificate(NSC) is an initiative by the Indian Post Office which offers a Risk-Free 8% fixed interest. It has a maturity period of 5 years with tax-free investment but taxable withdrawals at maturity.
This scheme is most popular among salaried people and government employees. Beneficiaries can avail tax benefits up to INR 1.5 Lakh.NSC can be transferred to legal heirs or to spouse with the consent of designated officials of the post office.
Investors with Low-Risk Tolerance and conservative investment style often choose to invest in NSC. Adding on, those with limited knowledge about the market and it’s trends also prefer to invest in NSC rather than other equity-based plans.
NSC allows you to show the interest earned each year as an income and reinvest the interest. Since the interest is reinvested, it qualifies for a fresh deduction under Sec 80C, thereby making it tax-free. Genius isn’t it?
Learn more about NSC.
Tax saving Fixed Deposit
Most Indians consider Fixed Deposits as a long term investment and contingency fund resort. Similarly, Tax Saving FDs serve two purposes just like other investment schemes i.e not only you save but get deductions in your tax as well. These are just like your regular FD but with a lock-in period of 5 years with INR 1.5 Lakhs being the maximum one can invest. Worth noting that premature withdrawals are not allowed until maturity.
The interest rate varies between 7–9% which is taxable. Isn’t it a good Risk-free return? The nature of this investment makes it more attractive to people with less risk tolerance and with longer time horizons. This plan is more suitable for investors with a conservative investment style. Senior citizens who have less risk tolerance are the front runners for investing in Tax Saving FDs. However, parents who aim to accumulate wealth in the long run for their children without any risk component also prefer to invest in this scheme.
Learn more about Tax Saving FD
ULIP
Investment in Unit Linked Insurance Plan (ULIP) is an insurance plan which also offers options to invest inequity and debt market. Market Knowledge is of paramount importance when it comes to investing in ULIP, hence the only individuals with a definite investment objective, high-risk tolerance, and thorough knowledge should invest in ULIP. (Or you can ask help from our experts)
The lock-in period here is around 5years with an expected return of 9–12%. ULIP has the potential to bear better returns than others due to its equity advantage. ULIP is an exception as it provides both death and maturity benefits to the holder.
Gladly enough, you can also switch funds during the term between growth, equity, balanced, income funds as per the market situation and your investment objectives. Though only a total of 4 switches are allowed every year for free.
Learn more about ULIP.
Senior Citizen Savings Scheme (SCSS)
Well, this is a no brainer. These Schemes are dedicated to senior citizens. Anybody who is aged above 60 years or is above 55 years of age and has opted for a VRS (Voluntary Retirement Scheme) can choose to invest in SCSS(with an exception of NRIs and HUFs).
An account can be with a minimum deposit of INR 1 Lakh up to a maximum of INR 15 Lakh. The maturity period in SCSS is 5 years.
In case of account holder wanting to close account prematurely between first and second year, 1.5% on principal amount is deductions. After expiry of 2 years, 1% of the deposit shall be deducted as a cancellation fee. However, no deductions are charged due in case of closure of the account due to the death of the account holder.
This Scheme is Risk-Free as Senior citizens won’t gamble their life savings in equity-based investments.
So next time, you come across a granny or grandad pondering where to invest their hard-earned cash, be a darling and help them out.
Learn more about SCSS.
NPS u/s 80CCD(1)
Though NPS doesn't fall under 80C, it is an honorable mention. National Pension System(NPS) is a pension scheme introduced by the Government in 2009. It is voluntary for all citizens with the exception of government employees. Account-holders receive a unique Permanent Retirement Account Number (PRAN).
10% of the employee’s basic salary plus dearness allowance is credited to the individual account along with the government contribution. The balance in the individual account can be withdrawn on retirement at 60, resignation or death while in service.
NPS provides two sub-accounts namely
- Tier-1: Withdrawals aren’t allowed
- Tier-2: Withdrawals are allowed. A tier-1 account is needed to open a Tier-2 account.
NPS account holders can choose from 4 investment options for their portfolios:- E, C, G, A.
E (High Risk- High Return; equity market instruments) C (Medium Risk-Medium Return; fixed income instruments) G (LowRisk-Low Return; fixed investment products) A ( Investments in Alternate Investment funds, REITs and Mortgage-Backed Securities)
Learn more about NPS
Sukanya Samriddhi Yojana
The Sukanya Samriddhi Yojana is a part of the initiative ‘Beti Bachao, Beti Padhao’. It helps parents systematically invest in their princess’s future at an 8.4% interest rate. Parents/legal guardians can register in this scheme before she turns 10. The maturity period of the account is 21-years post the date of registration.
An account can be opened by investing as little as INR 1000 for the first year. Later, investments can be made in multiples of INR 100 (a minimum INR 1000 has to be made each year). Premature closure will be allowed after completion of 18 years, provided that the girl is married. If the account is not closed after maturity, the balance will continue to earn interest as specified for the scheme from time to time.
Investors with longer time horizons and the objective of accumulating wealth for their daughter without taking much risk usually prefer this scheme.
Secure the life of your daughter/s with this scheme!
Learn more about Sukanya Samriddhi Yojana.
Okay! So now you know enough about various investment options. We hope this blog would help you invest wisely according to your financial needs and personal goals. Until then, Goodbye!
