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10 best tax-saving investments

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ET Bureau Jan 6, 2014, 12.12PM IST

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Multiple options. Contradictory advice. And a deadline that's

approaching fast. Many taxpayers find themselves in this
situation at the beginning of the year when they have to
make tax-saving investments.
Are you also confused? Before you make a choice, go
through our cover story to know which is the best option for
you. We have ranked 10 of the most common investments
under Section 80C on five basic parameters: returns, safety,
flexibility, liquidity and taxability. Every investment has its
pros and cons.

The PPF may not have a very high return, but its tax-free status, flexibility of investment and liquidity by way
of loans and withdrawals, gives it the crown in our beauty pageant. Equity-linked saving schemes come in
second because of their high returns, flexibility, liquidity and tax-free status. However, traditional insurance
policies, an all-time favourite of Indian taxpayers, manage the ninth place because of the low returns they
offer and their rigidity.
Some readers might be surprised that the much reviled Ulips are in the third place. The Ulip remains a
mystery and its returns are seldom tracked. We checked Morningstar's data on Ulips and found that the
returns have not been very good in the past 1-5 years. Even so, it can be a useful instrument for the smart

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http://articles.economictimes.indiatimes.com/2014-01-06/news/4591842...

investor who shifts his money between equity and debt without incurring any tax.
We have tried to separate the chaff from the grain by assigning a star rating to the various tax-saving options.
Whether you are a novice or a seasoned investor, you will find it useful. It will help you cut through the clutter
and choose the investment option that best suits your financial situation.
What the ratings mean:

PUBLIC PROVIDENT FUND

OUR RATING:

RETURNS: 8.7% (for 2013-14)

This all-time favourite became even more attractive after the interest rate was linked to bond yields in the
secondary market.

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The PPF is our top choice as a tax saver in 2014. It scores well on almost all parameters. This small saving
scheme has always been a favourite tax-saving tool, but the linking of its interest rate to the bond yield in the
secondary market has made it even better. This ensures that the PPF returns are in line with the prevailing
market rates.
This year, the PPF will earn 8.7 per cent, 25 basis points above the average benchmark yield in the previous
fiscal year. The benchmark yield had shot up in July and has mostly remained above 8.5 per cent in the past
six months. Although the yield is unlikely to sustain at the current levels, analysts don't expect it to fall below
8.25 per cent within the next 2-3 months. So it is reasonable to expect that the PPF rate would be hiked
marginally in 2014-15.

March 6, 2009

How falling inflation affects your investments

May 20, 2013

IN-DEPTH COVERAGE
Ppf

The PPF offers investors a lot of flexibility. You can open an account in a post office branch or a bank.
However, the commission payable to an agent for opening this account has been discontinued, so you will
have to manage the paperwork yourself. The good news is that some private banks, such as ICICI Bank,
allow online investments in the PPF accounts with them. There's flexibility even in the quantum and
periodicity of investment.

The maximum investment of Rs 1 lakh in a year can be done as a lump sum or as instalments on any working
day of the year. Just make sure you invest the minimum Rs 500 in your PPF account in a year, otherwise you
will be slapped with a nominal, but irksome, penalty of Rs 50. Though the PPF account matures in 15 years,
you can extend it in blocks of five years each. However, this facility is no longer available to HUFs.

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The PPF also offers liquidity to the investor. If you need money, you can withdraw after the fifth year, but
withdrawals cannot exceed 50 per cent of the balance at the end of the fourth year, or the immediate preceding
year, whichever is lower. Also, only one withdrawal is allowed in a financial year.
You can also take a loan against the PPF, but it cannot exceed 25 per cent of the balance in the preceding
year. The loan is charged at 2 per cent till 36 months, and 6 per cent for longer tenures. Till a loan is repaid,
you can't take more. If you dip into your PPF account, be sure to put back the amount at the earliest.
Withdrawing from long-term savings is not a good strategy if you do it frequently. It can dent your overall
retirement planning.
The PPF is especially useful for risk-averse investors, self-employed professionals and those not covered by
the Employees Provident Fund and other retiral benefits.
BRIGHT IDEA: Invest before the 5th of the month if you want your contribution to earn interest for that month
as well.

ELSS FUNDS
OUR RATING:

RETURNS: 17.5 per cent (Past five years)

The potential for high returns, wide choice of funds and flexibility make these funds a good tax-saving option for
equity investors.

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Readers' opinions (162)

Sort by: Newest | Oldest
Ryan (UAE)
21 May, 2015 08:59 PM
Very very insightful article on investment. Saving money is now easier than before.
Rajesh Kumar (India)
26 Feb, 2015 06:10 PM
I have taken term insurance plan. Is there any deduction in income tax.
Rajkumar (Coimabtore) replies to Rajesh Kumar
30 Mar, 2015 10:41 AM
Yes. Under 80C it can be detected.
divya (noida)
29 Oct, 2014 05:55 PM
what is the deduction scheme in mutual funds? Is it full or some percentage?
bharath (bangalore)
17 Oct, 2014 11:35 AM
I dont understand the maximum loan limit on PPF. iF 50% at the end of Fourth year or preceding year whihc ever is
lower is limit,Obviously preceding year(3rd) would be lowest ...and loan limit would decrease. can you please
clarify..or it is next year/fourth year combination?
shubhangi (mumbai)
29 Jul, 2014 04:18 PM
Thank u for usefull info..i hv a question.. If my income is 2lakh i invested Rs.2000 per month in ELSS..then what will
be my taxable salary for current financial year..Plz answer me
Devdatta G (Unknown) replies to divya
23 Nov, 2014 12:45 PM
Do you mean deduction u/s 80C? It's full amount invested, max Rs. 1.5 Lakh for FY2014-15.
Aman Baranwal (Jaipur) replies to shubhangi
12 Oct, 2014 11:59 PM
For Financial Year 2014-15, Slab applicable for Tax Free Income is Rs. 250000/-. in addition to t, an
additional tax rebate of Rs. 2000 U/s 87A of Income Tax Act, 1961 will also be applicable, if taxable
Income of Assessee is less than Rs. 500000/-. In this case, your Gross Income is Rs. 200000/- and
Taxable Income (after Adjusting 80C benefit for ELSS of Rs. 24000/-) is Rs. 176000/-, which is well
below the limit of Rs. 2.50 Lacs.
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