Tax Saver Plan in India

The best way to attain monetary independence is through utmost savings and nominal amount of tax reduction from your earnings. However, investments are not done for tax saving purposes only.

PLAN INVESTMENT INTEREST RATE
Bank FD Min : ` 100
Max :
8%-10%
PPF Min : ` 500
Max :
Compounded at an annual interest of 8%
NSC Min : ` 100
Max :
Compounded on 8% twice a year
Infrastructure Bonds Min : ` 30,000
Max : ` 1, 00,000
Compounded on 5% to 6% or 8.7% to 11.71%,
Life Insurance Schemes Depends on policy Depends on policy
ELSS Min : ` 5,000
Max : ` 1, 00,000
Based on market performance
ULIPS Depends on plan Depends on plan


Bank Fixed Deposits

In a bank fixed deposit saving plan, a specific amount of money is invested in the bank for a certain period of time by allotting a static rate of Interest. The minimum investment in most of the banks is ` 100. At present the rate of interest in most of the banks is between 8%-10%.

Benefits under Bank Fixed Deposits:

  • The investment in bank fixed deposit saving plan is tax free under section 80L up to a limit of ` 12,000.
  • The deposits will be secure as they are indemnified under the Deposit Insurance & Credit Guarantee Scheme of India.
  • The investor can apply for loans upto 75%-95% of the amount deposited under the bank fixed deposit against the receipts of the fixed deposits
  • Bank Fixed deposits are best to opt for if you want to invest your money for an extended period of time besides getting high returns.
Public Provident Fund (PPF)

Public Provident Fund (PPF) is supported by the government and is generally safe with comparatively high returns. The minimum limit of investment in PPF is ` 500 and the maximum is upto ` 70,000 per annum. At present PPF is compounded at an annual interest of 8%. Benefits under Public Provident Fund (PPF):

  • The investor enjoys the rebate on his investment under section 80C of I.T. Act 1961
  • Interest income on PPF and the final amount is considered as tax free
  • Investments in small amounts can be made every year for a longer duration
  • Investments are fixed deposited for 15 years
  • Balance amount held in Public Provident Fund is tax exempted from wealth tax
National Savings Certificate (NSC)

Referred by its ellipsis NSC, National Saving Certificate is a post office savings plan. Like PPF, NSC is also supported by the government and is one of the secure investment alternatives. There is no maximum limit on investment; however, the minimum investment limit is ` 500 which can be issued in small amounts of ` 100, ` 500, ` 1, 000, ` 5, 000 and ` 10, 000. The interest on investment is compounded on 8% twice a year.

Benefits under National Savings Certificate (NSC):

  • The investor enjoys tax rebate on initial 5 years under section 80C of Income Tax Act
  • Documentation can be guaranteed as safety against a mortgage to banks or Government Institutions Provision of encashment of documentations via banks.
  • However, the investment in NSC is locked in for 6 years and is taxable under 'income from other sources'.
Infrastructure Bonds

An investor can save on taxes by investing in Infrastructure Bonds as mentioned under Section 88 of the Income Tax Act, 1961. The maximum investment is ` 1, 00,000 and the minimum limit is ` 30,000. The investments will be fixed deposited for 3 years and the interest will be compounded on 5% to 6% or 8.7% to 11.71%, if the tax break is considered.

Benefits under Infrastructure Bonds:

  • Investments in infrastructure bonds from different banks are eligible for a rebate under Section 88 of the Income Tax Act.
However, the interest will be chargeable; the investor can assert tax exemptions against ` 15,000 under Section 80L.

Life Insurance Schemes

While applying for Life Insurance plans look for schemes which not only provide high returns but also maximize your insurance policy. The maximum and minimum limit of investment, it lock-in period and returns depends on the terms and conditions of the cover. To qualify for rebate under Section 88, the total premium amount should be within ` 70,000

Benefits under Life Insurance Schemes

  • The investor can enjoy rebate on his investments under section 80C
Equity Linked Savings Scheme (ELSS)

ELSS is a savings plans associated with equity markets. The maximum investment amount is ` 1, 00,000 and the minimum amount is ` 5,000. The investments are fixed deposited for three years and the ELSS returns are based on market performance.

Benefits under Equity Linked Savings Scheme (ELSS)

  • The entire investments done under Equity Linked Savings Scheme qualify for tax deduction under 80C of Income tax Act, 1961.
Unit Linked Insurance Plans (ULIPS)

ULIPs operate like a mutual fund does and offers a life insurance. Both the maximum and minimum amount and lock-in period of investment depends upon the terms and conditions of the plan. The premium paid by the investor is invested in instruments like commercial bonds, public securities and stocks.

Benefits under Unit Linked Insurance Plans

  • Investments under ULIPs are eligible under Section 80C of the Income Tax Act.
  • Maturity earnings from ULIPs are tax exempted

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