Best Tax Savings Options

We are already in the month of February and very soon March will be upon us. So it is time to think about taxes and how to save them. But which are the best tax savings options available? Here we give you a list of some of the best tax savings options open for you.

  • ELSS: Are you ready to take risks in order to earn high returns? If your answer is yes, then this is the best option. ELSS or equity linked savings schemes are mutual funds with a lock-in period of 3 years and they invest in equities. Here you not only save tax but also get capital growth.
  • PPF: It is one of the best debt products available in the market. It is backed by Government of India and has a lock-in period of 15 years. You get 8% interest on the amount deposited and both interest as well as capital withdrawal are tax-free. However you cannot invest more than Rs 70,000 in any one financial year.
  • Medical insurance: You can get a deduction of Rs 15,000 if you are paying a medical insurance premium for you and your dependants. But if your dependents are your parents, you get further deduction of up to Rs 15,000. If you are senior citizen, your deduction amount goes up to Rs. 20,000.
  • Home loan principal: The principal portion of your EMI will also help you save tax.
  • Life insurance: This investment will not only save you tax but will also give you a peace of mind should you die or are unable to work. Opt for a simple term plan that will give you higher life cover at low premium.

What is Public Provident Fund (PPF)?

Looking to save tax? Want secure yet tax-free returns? How about an investment option that is backed by government? Then PPF should be high on your priority. PPF a.k.a. Public Provident Fund is a savings account offered by Government of India. It can be opened at any public sector bank or post office. You can invest a maximum of Rs. 70,000 in a year. It carries an interest rate of 8%, which is tax-free.

Here are the main features of PPF:
• Absolute safety: As the amount deposited in PPF account is backed by Government of India, you can rest assured your money is in safe hands.
• Tax benefits: Investment in PPF attracts a tax rebate of 20%. You just have to show the proof of deposit and claim tax benefit.
• High interest: Though interest rate on PPF varies, it doesn’t change frequently. Present rate on PPF is 8%. Add to that the tax benefit you get, the interest earned is actually more than 8%.
• Low minimum investment amount: The smallest amount that you can deposit in PPF is Rs. 500.
• Loan facility: In case of emergency, you can take a loan against the balance in your PPF account. It is available from 3rd and 6th year. It can be up to 25% of the balance in your account and the interest rate charged on the loan is 2% more than the rate of interest earned on your PPF account. The tenure for the loan is 24 months.
• Extension available: Normally the tenure of PPF account is 15 years. After that you can extend it for further 5 years.
• Withdrawal facility: If in need of money, you can withdraw money from your PPF account. This facility is available to you from 7th year onwards. The withdrawn amount should be the lower of the 50% amount in your account at the end of 4th year and 50% of the amount in your account in the previous year.
• Eligibility criteria: Anybody can open the PPF account. However joint account is not possible. However if you think all is well with PPF, then you are wrong. It does have some drawbacks:
• Amounts over Rs 70,000 do not earn any interest.
• Interest rate may not catch up with inflation, thereby eroding the value of your money.
• If you are not to pay your yearly installment, then you are considered a defaulter. To regularize your account, you have to deposit Rs 500 as installment + Rs. 100 as penalty for each year of default.
• Government has plans to tax withdrawal from PPF in future. So you may end up paying tax ultimately.

Despite its drawbacks, PPF remains an excellent vehicle for long-term investment. So make the best use of it.

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