With the end of the financial year fast approaching, the employed need to furnish their Section 80C investments, which has a combined limit of Rs 150,000, to employers.
If you haven’t still made any investments, here are five key ones
Employee Provident Fund (EPF): This is the easy part. The employer will have this data, as it is deducting this amount from your salary. The employer deducts 12 per cent of your salary and deposits it with the Employee Provident Fund Organisation, or some companies may have their own recognised provident fund. The current interest rate on the EPF is 8.65 per cent (2016-17). Interestingly, this one-year interest is higher than returns from all categories of debt funds in the past year, and the best part, enjoys the exempt-exempt-exempt tax status.
National Pension System (NPS): The employed have the EPF or the NPS option to get benefits under Section 80C. This instrument allows the investor to earn stock market-linked returns. However, only part of its proceeds, 60 per cent, can be withdrawn in lumpsum on retirement and is taxable. The rest of the amount has to be used to buy an annuity. Besides investment under Section 80C, an additional investment of Rs 50,000 can be made in this instrument as well.
Public Provident Fund (PPF): Deposits made in this instrument also enjoy the tax-free status, but if withdrawals are made after 15 years. However, the account holder can take loans against the corpus in their PPF account. Though the government has been steadily bringing down the rate of interest on this instrument, it is still a good 7.6 per cent, compounded annually.
Equity Linked Savings Scheme (ELSS): These are mutual funds which invest at least 65 per cent of their assets in equities. However, investors have to stay invested for at least three years to get tax benefit under Section 80C. For investors who take the systematic investment plan route to invest in ELSS, remember that each instalment has to be complete three years before you can withdraw and get the tax benefit.
Tax-saving Fixed Deposits (FD): To get Section 80C benefits from these instruments, invest the money for five years. Different banks offer different interest on the tax-saving FDs, which range from 6-7 per cent. While the investment gets tax benefits, but upon maturity, the interest is added to the investor’s taxable income.