Category: Personal Finance

Post Office Monthly Income Scheme Account (MIS)

With an initial deposit of Rs 1000 up to a limit of Rs 4.5 lakh for single holders and Rs 9 lakh for joint holders, post office monthly income scheme comes with a tenure of 5 years. One can open a MIS account on behalf of his or her name as a single ownership or jointly up to a limit of three adults. POMIS promises a monthly interest rate of 6.6 percent as of now. Although the returns are not inflation-beating, they are better than most fixed-income investments such as FDs. If we compare to the 5-year FD rates of SBI with 5.4%, Axis Bank with 5.5%, HDFC Bank with 5.5% and ICICI Bank with 5.35%, the interest rate of POMIS is much higher and guaranteed as the scheme is backed by the government of India.

RBI Floating Rate Savings Bonds

The RBI Savings Bond has a seven-year maturity period. Every six months, the interest rate on RBI Floating Rate Savings Bond is adjusted by the government. The interest earned on the RBI Floating Rate Savings Bond is completely taxable, and tax will be deducted from interest payments as required. Bonds can be purchased with a minimum deposit of Rs 1,000 (no maximum deposit limit). Senior citizens can take advantage of a special early withdrawal facility with these bonds. After the next update date of July 1, 2021, the Reserve Bank of India’s (RBI) Floating Rate Savings Bonds, 2020 (taxable) will keep paying the same interest rate, which is 7.15 per cent till June 30, 2021.

National Pension System Tier II

National Pension System (NPS) Tier II account is a voluntary account that can only be opened if you have an NPS Tier I account. For central government employees, deposits made in the NPS Tier II accounts are liable for an income tax deduction under Section 80C of the Income Tax Act. For private-sector employees, though, there is no income tax allowance for NPS Tier II deposits, and income in the NPS Tier 2 are taxable at the relevant slab rates. In the last year, the NPS Tier II Account Scheme G, which invests in government bonds and related instruments, has produced double-digit returns. If we look at the current returns of NPS Scheme G Tier II, the 1 year and 3-year returns of NPS Tier 2 is much higher than FD rates of SBI which is now kept at 5 to 5.1% only.

5-year National Savings Certificates (NSC)

At any post office, one can purchase a National Savings Certificate, which is a fixed-income investment scheme. It is a savings fund offered by the Government of India that allows subscribers with tax benefits and fixed returns too. This scheme, like the Public Provident Fund and Post Office FDs, is a safe and risk-free investment option. You can purchase it for your own, for a minor, or jointly with your spouse. As the name suggests it comes with a maturity period of 5 years. Although the interest earned in the first four years is reinvested, interest earned in the fifth year is subject to taxation at the applicable tax slab rate of the investor or subscriber. The certificates provide a fixed rate of interest, which is now 6.8% per annum.

Senior Citizen Savings Scheme

An individual must be 60 years old or older to invest in SCSS. SCSS now fetches an interest rate of 7.4 per cent per year. SCSS allows only one deposit in the account in multiples of Rs 1000 up to a limit of Rs 15 lakhs. Investors can open multiple accounts, either individually or jointly with their partner for a maturity period of 5 years which can be further extended to a block of 3 years. Quarterly interest in SCSS accounts is due on the first working day of April, July, October, and January. Under Section 80C of the Income Tax Act, 1961, investments made in a Senior Citizen Savings Scheme account are eligible for an income tax deduction of up to Rs. 1.5 lakh. SCSS interest is entirely taxable. Tax Deducted at Source (TDS) is applied on interest accrued if the interest earned is more than Rs. 50,000 in a fiscal year.

Small Finance Bank FDs

Currently, some small finance bank FDs offer interest rates ranging from 4.25 per cent to 7.75 per cent, which is significantly higher than the rates offered by major public and private sector banks. In contrast to general customers, senior citizens earn a 50 basis point higher on these deposits. In comparison to other top lenders such as State Bank of India (SBI), HDFC Bank, ICICI Bank, Axis Bank, and others, these banks pay competitive interest rates. To know more small finance bank FD rates, click here.

Kisan Vikas Patra

A single individual, joint or adult serving on behalf of a minor can invest in KVP to get a fixed rate of interest of 6.9% compounded annually. KVP is available at every Departmental Post Office. Deposits in KVP can be made for a minimum of Rs. 1000 and in multiples of Rs. 100 with no upper limit. Kisan Vikas Patra has a 124-month maturity period, after which you can withdraw the accrued corpus. Investors of Kisan Vikas Patra are not eligible for any income tax benefits. The investment is not liable for an 80C allowance, and the interest earned upon maturity/withdrawal is entirely taxable. Upon maturity, however, withdrawals are exempted from Tax Deduction at Source (TDS).

Company Fixed Deposits

Investors who want better returns than bank FDs, though at a marginally higher risk, consider corporate FDs. Interest on corporate FDs, like FDs, is entirely taxable at the effective tax rate of the investor. Because of the risk, it is not secure to invest in corporate FDs for risk-averse investors. However, if you choose to invest in them, you can select corporates with high ratings to reduce your risk. An AAA or AA rating means that the issuer’s risk capacity is good in terms of prompt payment. The stronger the rating, the greater the corporate’s risk potential. Often, make sure the conditions for early redemption aren’t too onerous. Hence. If you want to invest in corporate or company FDs, here are the current interest rates(for the general public) that are much higher than the FD rates of the leading public as well as private sector banks. Note: senior citizens will get an additional interest rate ranging from 0.25% to 0.50% respectively.

Public Provident Fund (PPF)

PPF is a government-backed scheme that allows you to deduct your deposit under Section 80C. In a financial year, you can invest as little as Rs 500 or as much as Rs 1.5 lakh. PPF interest is generally tax-free (compounded annually) and has a 15-year maturity term. It’s worth bearing in mind that the interest rate is guaranteed but not set. Every quarter, the rate is subject to adjustment. The current interest rate is 7.1 percent for the quarter ending March 31, 2021. PPF provides one of the best post-tax returns among all fixed income instruments since the interest received and the maturity amount are also tax-free.

Employees’ Provident Fund

Interest from contributions to the Employee Provident Fund worth more than Rs 2.5 lakh will be taxable under the current tax system. To begin with, interest received on PF contributions of more than Rs 2.5 lakh is taxed. On or after April, 2021, this clause will apply to the contributions made. PF contributions are tax-deductible up to a limit of Rs 1.5 lakh per year under Section 80C. Worth mentioning here is that not only EPF contributions but also interest accrued as well as withdrawals are also tax-free. If an individual is willing to accept a lower take-home pay, he or she can raise this contribution. VPF is the name for this additional contribution, which is also tax-deductible under Section 80C. Both the EPF and the VPF have the same regulations. Budget 2021 suggests restricting the exemption on VPF return received. According to the proposal, if the total investment in VPF and EPF in a financial year exceeds Rs 2.5 lakh, the returns received on the contribution over Rs 2.5 lakh will not be tax-free. Currently, for the fiscal year 2020-21, the interest rate on PF deposits has been kept at 8.5 percent.

Voluntary Provident Fund

The VPF is an extension of the EPF. An individual is required to contribute 12 percent of his Basic Salary and Dearness Allowance towards EPF. VPF is a voluntary contribution with a 100 percent overall cap. VPF is an outstanding tax-saving choice because it falls into the EEE category (means contribution, principal, and interest are tax-free). The Government of India sets the interest rate for the Voluntary Retirement Plan at the outset of each fiscal year. The scheme is run by the Indian government and has a fixed interest rate. As a result, when opposed to long-term investments, it is called a risk-free investment. In this scheme, interest is currently generated at a rate of 8.5 percent per year. Section 80C allows contributions up to 1.5 lakhs per annum and accrued interest from taxation.

Life Insurance Premiums

Section 80C allows you to deduct any amount paid against life insurance premiums for yourself, your spouse, or your children. Please bear in mind that the premiums you owe for your parents or in-laws are not deductible under Section 80C. If a Hindu Undivided Family (HUF) purchases a life insurance policy for one of its members, it can seek a tax refund also. Premium payments for life insurance can be stated as a deduction under Section 80C up to a cap of Rs.1,50,000. The only stipulation is that the premium must be less than 10% of the total sum assured.

Equity Linked Savings Scheme (ELSS)

ELSS has the shortest lock-in period of three years, of all the alternatives available under section 80C. ELSS has the shortest lock-in period of all the alternatives available under section 80C, at three years. Long-term capital gains (LTCG) tax applies on capital gains from ELSS schemes. Section 80C of the Income Tax Act allows you to deduct your ELSS contributions. Since it is equity-linked, ELSS has the ability to gain better returns than most tax-saving investments, but it also carries a higher risk. The amount that can be invested towards ELSS is limitless, but the tax gain is limited to Rs 1.5 lakh.

Monthly EMI for home loan repayment

For most of the individuals, owning a home is a fantasy come true. The Indian government has always had a strong desire to allow people to buy homes. This is why a home loan qualifies for the section 80C tax exclusion. In addition, when you purchase a home with a home loan, you get a slew of tax incentives that help you save money on your tax. Section 80C allows you to subtract the principal portion of the EMI for the year. The amount that can be claimed is limited to Rs 1.5 lakh. However, the house property must not be sold after 5 years of ownership in order to assert this exemption. Furthermore, any payment rendered to development authorities such as the Delhi Development Authority (DDA) in order to buy a house that has been allocated to you in a scheme generated in this respect is deductible under section 80C.

Sukanya Samriddhi Account

You can open an account on behalf of your minor daughter before she reaches the age of ten in this scheme. Whereas contributions made towards this scheme counts for a Section 80C deduction. Furthermore, this account can be opened (with an initial deposit of Rs 250 up to a limit of Rs 1.5 lakh) for a limit of two girls, with the third child being included in the case of twins. The investments must be kept in this account for a period of 15 years and the account will mature after 21 years. Every quarter, the interest rate on new deposits is modified. The rate of interest for the quarter ending March 31, 2021 is kept at 7.6 per cent respectively.

National Savings Certificate (NSC)

The National Savings Certificate (NSC) is a five-year tax-saving investment option. An NSC can be purchased for as little as Rs 100, and there is no limit on the amount that can be invested. Any investment in NSC qualifies for a deduction under Section 80C’s overall cap. This interest is taxable and compounded yearly. However, since this is a cumulative strategy, which ensures that interest is not accrued to the investor but reinvested in the NSC. It counts for a special exemption under Section 80C because it is considered reinvested, ultimately making it completely free from taxation. Section 80C allows for a tax exemption on NSC investments up to Rs 1.5 lakh per year. To settle at net income, the amount is deducted from gross total income. In lieu of income tax, interest on NSCs is considered to be reinvested on behalf of the holder each year and is eligible for a deduction under Section 80C up to a maximum of Rs 1.5 lakh. In the case of NSC, the interest earned in the final year or the fifth year is not re-invested. As a result, it cannot be exempted from taxable income under Section 80C. The interest from NSC for the final year is credited and taxed to the income of the NSC certificate holder.

5 Year Tax Saving FDs

By investing up to Rs.1.5 lakh in a tax-saving fixed deposit account, you can take advantage of the income tax deduction clause under Section 80C of the Income Tax Act. The scheme promises both returns and capital security. That being said, you should be aware that the account’s interest income is entirely taxable. The amount of tax you owe is entirely determined by your total income for the fiscal year and the tax bracket you fall under. Interest income is classified as “Income from Other Sources.” In fact, if the interest received in a fiscal year reaches Rs.40,000 from all accounts kept with the bank, the bank deducts tax at source. To avoid TDS one can submit the bank with Form 15G or Form 15H.

Senior Citizen Savings Scheme (SCSS)

The Senior Citizens Savings Scheme (SCSS) is a government-backed savings initiative for Indian citizens above the age of 60. The deposit matures after 5 years from the date of account opening under the Senior Citizen Savings Scheme, although it can be extended once for another 3 years. The SCSS’s current interest rate remains at 7.4%. The Ministry of Finance updates and adjustments this rate of interest on a quarterly basis. Interest is determined and credited quarterly on SCSS account deposits. Under Section 80C of the Income Tax Act, 1961, contributions made in a Senior Citizen Savings Scheme account are eligible for an income tax deduction of up to Rs. 1.5 lakh. SCSS interest is entirely taxable. Tax Deducted at Source (TDS) is applied on interest accrued if the amount earned is more than Rs. 50,000 in a fiscal year.

Post Office Time Deposit

A Post Office Fixed Deposit is a fixed-income scheme that can be made at a post office. One year, two years, three years, and five years are the time periods for these fixed deposits. Tax incentives under section 80C can be received by investing in this deposit scheme. Interest from a post office deposit scheme is tax-deductible under section 80C of the income tax act. Investments are only permitted to be withdrawn if they are kept for a term of five years. Under section 80C, the taxpayer can assert a maximum tax deduction of Rs 1,50,000. The interest earned on post office fixed deposits will be tax-free for Indian senior citizens. Section 80TTB of the Income Tax Act exempts them from paying tax on interest income up to a limit of Rs. 50,000. The current post office time deposit interest rate is kept between 5.5 and 6.7 percent.

Unit Linked Insurance Plan (ULIP)

A Unit Linked Insurance Plan (ULIP) combines insurance and investment into one policy. The aim of a ULIP is to provide wealth creation as well as life insurance, with the insurance company investing a portion of your money in life insurance and the remainder in a portfolio that is centered on equity, debt, or both and fits your long-term priorities. ULIP premiums are eligible for a deduction under Section 80C up to a limit of Rs 1.5 lakh per year. Furthermore, under Section 10(10D) of the Income Tax Act, the amount you earn at maturity is tax-free.

National Pension System (NPS)

The NPS is a decent option for someone who wants to start saving for retirement early and isn’t afraid of taking risks. A well-planned investment like this will have a significant impact on your personal finance after retirement. Any individual who is an NPS subscriber can receive a tax gain under Section 80 CCD (1) up to a maximum of Rs. 1.5 lac under Section 80 CCE. NPS subscribers are eligible for an additional deduction of up to Rs. 50,000 for contributions in NPS (Tier I account) under subsection 80CCD (1B). This is in addition to the Rs. 1.5 lakh exclusion available under Section 80C of the Income Tax Act of 1961. Subscribers are eligible for an additional tax benefit under Section 80CCD (2) of the Income Tax Act, that refers to the corporate sector. Employer contributions to the NPS (for the benefit of employees) up to 10% of salary (Basic + DA) are tax-exempt. Employer contributions to NPS can be deducted as a ‘Business Expense’ from their Profit & Loss Account up to 10% of salary (Basic + DA). Investing in a Tier II NPS Account, however, does not have a tax advantage.

GoodReturns.in

Quant Tax

Crisil has ranked Quant Tax Plan as number “1” for December 2020. The fund was started in January 2013 and the fund size is Rs 66 Crore. The Value Research Online has given a Five-star rating for the fund. The Net Asset Value of the fund as of 15 March is Rs 164.02. There is no exit load on the fund. The portfolio comprises Bharti Airtel, Fortis Healthcare, Sun Pharma, and ITC among others.

While through the SIP route, taking 3-years into account, the scheme has offered an annualized return of 21.73% with an investment worth Rs. 1000 per month for 3 years. The return would be Rs 48,654 per annum. The one year return of the fund is 103.46%

Canara Robeco Equity Tax Saver

Crisil has ranked Canara Robeco Equity Tax Saver as number “1” for December 2020. The fund was started in January 2013 and the fund size is Rs 1,724 Crore. The Value Research Online has given a Five-star rating for the fund. The Net Asset Value of the fund as of 15 March is Rs 101.67. The expense ratio on the fund is 1.08%. The portfolio comprises Infosys, ICICI Bank, HDFC Bank, and Axis Bank among others.

Taking 3-years into account, the scheme has offered a SIP return of 19.20%. The one-year return of the fund is 55.44%.

Mirae Asset Tax Saver Fund

Crisil has ranked Mirae Asset Tax Saver Fund as number “2” for December 2020. The fund was started in December 2015 and the fund size is Rs 6,351 Crore. The Value Research Online has given a Five-star rating for the fund. The Net Asset Value of the fund as of 15 March is Rs 27.81. The expense ratio on the fund is 0.28%. The portfolio comprises HDFC Bank, Infosys, ICICI Bank, and 4 Axis Bank among others.

With a 3-year investment period, the scheme has provided an annualized return of 18.80%. The fund’s one-year return is 64.52%.

Axis Long Term Equity Fund

Crisil has ranked Axis Long Term Equity Fund “2” for December 2020. The fund was started in January 2013 and the fund size is Rs 27,216 Crore. The Value Research Online has given a Four-star rating for the fund. The expense ratio on the fund is 0.72%. The portfolio comprises Bajaj Finance, TCS, HDFC Bank, and Avenue Supermarkets among others. The NAV of the fund is Rs 67.98.

With a 3-year investment period, the scheme has provided an annualized return of 16.29%. The fund’s one-year return is 39.62%.

Kotak Tax Saver Scheme

Crisil has ranked Kotak Tax Saver Scheme “2” for December 2020. The fund was started in January 2013 and the fund size is Rs 1,679 Crore. The Value Research Online has given a Four-star rating for the fund. The Net Asset Value of the fund as of 15 March is Rs 65.84. The expense ratio on the fund is 0.85%. The portfolio comprises Infosys, TCS, ICICI Bank, Reliance Industries, and Hindustan Unilever among others. The NAV of the fund is Rs 65.84.

With a 3-year investment period, the scheme has provided an annualized return of 14.95%. The fund’s one-year return is 48.83%.

Invesco India Tax Plan

Crisil has ranked Invesco India Tax Plan “3” for December 2020. The fund was started in January 2013 and the fund size is Rs 1,461 Crore. The Value Research Online has given a Four-star rating for the fund. The Net Asset Value of the fund as of 15 March is Rs 77.34. The expense ratio on the fund is 0.90%.

JM Tax Gain Dir

Crisil has ranked JM Tax Gain Dir “3” for December 2020. The fund was started in January 2013 and the fund size is Rs 52 Crore. The Value Research Online has given a Four-star rating for the fund. The Net Asset Value of the fund as of 15 March is Rs 25.78. The expense ratio on the fund is 2.02%.

DSP Tax Saver Fund

Crisil has ranked DSP Tax Saver Fund “3” for December 2020. The fund was started in January 2013 and the fund size is Rs 7,883 Crore. The Value Research Online has given a Four-star rating for the fund. The Net Asset Value of the fund as of 15 March is Rs 70.37 The expense ratio on the fund is 0.85%.

Conclusion

Gains on ELSS are tax-free up to Rs 1 lakh, and dividends are tax-free in the hands of owners. Even when returns are taxed, ELSS outperforms other Section 80C investment options such as Public Provident Funds (PPFs) and ULIPS, with higher post-tax returns. ELSS is ideally suited for young investors to fully utilize the power of compounding and reap high returns while saving taxes. You can redeem your mutual fund investments in two ways. One choice is to take a one-time lump sum withdrawal. Two, launch a systematic withdrawal plan, also known as an SWP. It is the method of removing a predetermined volume at regular intervals.