Afternoon D & C Dedicated To Mumbai
Home > Business & Investment > 11 Options that help you Save Tax and also grow your Wealth

11 Options that help you Save Tax and also grow your Wealth

Monday, January 01, 2018

By E R Ashok Kumar,
CEO and co-founder, Scripbox

There are a number of options that help in saving taxes. Here is a brief outline of 11 tax-saving options that also help in growing your wealth.

1.    ELSS Tax Saving Mutual Funds
    These are a type of mutual funds that invest in equity or stocks. ELSS funds can deliver returns ranging between 14 and 16% over the long term. Although this return is not guaranteed, historical data indicates that these returns are achievable over the long term. ELSS funds have a lock-in period of 3 years – the lowest amongst the options available – and the return is tax-free.

2.    Public Provident Fund
    This is a suitable option for those who are looking for fixed returns. They earn interest at a rate announced every quarter – currently 7.8%. The duration of a PPF account is 15 years and is extendable by 5 years at a time. Money cannot be withdrawn from a PPF account except under specified conditions but not before 5 years.

3.    5 Year Bank FDs
    These offer slightly higher interest rates compared to normal FDs (0.25-0.5% higher) but have no liquidity as premature withdrawal is not possible. The interest earned on a 5-year bank FD is fully-taxable. Taxes are payable on a yearly basis for the interest earned in that period.

4.    National Savings Certificate (NSC)
    The current rate of interest is 7.8% for 5-year lock-in NSCs. The interest thus generated is fully taxable. However, one key difference here is that the interest amount is not paid out to the investor. Instead, it is re-invested in NSC and therefore can be considered as investment for the subsequent year. NSCs are thus a complex instrument.

5.    Life Insurance Premium
    This has been the default tax saving option for years. However, over the last few years, many informed investors have realized that there are shortcomings in choosing this option for tax-saving purposes. While life insurance has its benefits, it is not an ideal way to save taxes and grow wealth at the same time.

6.    National Pension Scheme
    This is similar to investing in mutual funds. It offers safe, moderate and risky options and returns are not guaranteed. The investor can only withdraw on reaching the age of 60 and the corpus amount must necessarily be invested in an annuity. The withdrawals are also taxable.

7.    Pension Funds
    These come in two variants- deferred annuity and immediate annuity. Pension funds are unpopular because of the low returns that they give.

8.    Senior citizens savings scheme
    This can only be opened by people who are above 60 years old. It comes with a maximum cap of Rs. 15 lakhs and a lock-in period of 5 years. One may withdraw the money before that subject to penalties.

9.    EPF (Employee Provident Fund)
    This is not optional for salaried employees. A lot of people forget that the amount contributed to EPF is also eligible for tax deduction. One can withdraw EPF when changing jobs. However, the accrued amount will be taxed as other income. If one withdraws EPF after 5 years, no taxes are applicable. The interest rate varies very year.

10. Tuition Fees for Children
    Tuition fees for up to two children can be exempt from tax. This covers tuition fees only and not development fees or donations.

11.    Home Loan Principal Repayment
    Tax exemption is allowed for the repayment made towards home loan principal. The interest component is not eligible for tax benefits.
To conclude, it becomes evident that for those looking to save tax, there are ample avenues. The important question to ask is- does it also offer returns that beat inflation? In light of all the pro and cons, ELSS is among the best options for saving tax.

No Comments Posted
City news
The Byculla police arrested two relatives of the ...
One does not need a year-ender review to ...
Set to impose fines on the contractors for ...
The smart guys who are predicting your death seem
Dr. Rajan B. Bhonsle, M.D. (Bom)
Consulting Sex Therapist & Counsellor
Dr. (Mrs.) Minnu R. Bhonsle, Ph.D.
Consulting Psychotherapist & Counsellor
Select Sun sign:
Aries (Mar 21 - Apr 20)
Aries (Mar 21 - Apr 20)Substantial gains from routine work are indicated. However, you can afford to be a bit adventurous with work proposals from overseas, which are also likely to materialize. Some extra expenses are indicated but are necessary to secure a particular assignment that you are negotiating. A new romantic association adds sparkle to your life. Someone you had loved and desired for long will now get drawn to you quite unexpectedly.
- Advertising -
Sensex over the year surged 28%
The stock markets would be guided by macroeconomi
What doesn't kill you, makes you stronger. That's
Read More