We are ending 2016 now and tax payers are busy looking at best tax saving investment options to save income tax in 2017 under section 80C. If you can plan well, you can save income tax and also ensure you get higher returns. Which are the various best tax saving investment options available in 2017 in India to save tax u/s 80C? What are the tax saving plans available for salaried employees? Which are the best tax saving investment plans in 2017 that helps you save tax and provide good returns to you?
Top 14 Best Tax Saving Investment Options in India for 2017
Top#1 – ELSS Tax Saving Mutual Funds
ELSS Tax Saving Mutual Funds offer highest returns compared to any other tax saving investment plan in India.
ELSS Tax Saving Mutual Funds returns are not guaranteed. However, if you can take some risk, you can earn amazing returns of 12% to 15% by investing in these funds.
ELSS Funds have lowest lock-in period of 3 years.
Investors can opt for dividend option and get regular income even during the lock-in period.
Investing in ELSS funds through SIP every month would help you reduce burden of investing a lump sum, take care of market fluctuations and provide higher returns. One should note that each month SIP would have lockin period of 3 years. E.g. if your SIP starts in Jan-17, the lockin period of 3 years ends in Dec-2019. However, your second SIP which you invested in Feb-2017 would have lock in period till Jan-2020.
Since this is an equity mutual fund and investment period is 3+ years, returns / capital gains from selling such funds are tax free.
Some of the top ELSS tax saving mutual funds are Axis Long Term equity fund, Reliance Tax Saver fund, DSP BR Tax Saver Fund etc.,
You can refer top ELSS Tax Saving Mutual funds for 2017 article for more info.
This is one of the best investment plans that provides higher returns that can also help you to save tax in 2017.
Top#2 – Public Provident Fund
Ministry of finance is reducing the PPF interest rates year on year. However, this is still one of the best investment option to save income tax.
If offers 8% interest per annum. Govt. of India would keep updating this every quarter. The interest rate indicated is for the period Oct-16 to Dec-16.
Interest received is tax free at maturity.
PPF has lock-in period of 15 years.
Investment up to Rs 1.5 Lakhs per annum qualifies for IT Rebate under section 80 C of Income Tax Act.
Loan facility in PPF account is available from 3rd financial year up to a 5th financial year. The rate of interest charged on loan shall be 2% per annum above the interest paid.
Withdrawal permitted from 6th financial year.
Non-Resident Indians (NRIs) are not eligible to take PPF. However, if they have opened PPF when they were in India, NRI’s can continue to operate their PPF account.
An individual cannot invest on behalf of a HUF (Hindu Undivided Family) or Association of persons.
Minimum investment is Rs 500 and maximum is Rs 150,000. If you invest any amount beyond this amount, the amount would returned to your account without any interest.
You can invest in PPF every month. If you can invest by the 5th of the month, you can get interest for the remaining period of the month.
PPF offers several good features and it is one of the best investment options to save tax u/s 80C in 2017. This is suitable for those who want tax savings and who want to accumulate funds for retirement purpose or children education and want to earn safe and highest returns. This is one of the best investment plans to save tax. You can also compare PPF and ELSS Mutual funds to know which one suits you better.
Top#3 – Sukanya Samriddhi Account Scheme
If you have girl child, you can invest upto Rs 1.5 Lakhs as part of Sukanya Samriddhi account Scheme and get highest interest rates.
Interest rates for FY2016-2017 are 8.6%.
Parents / Guardian can make deposits till the girl attains 15 years of age. The account gets matured once girl reaches 21 years. No deposits to be made between 16th year to 21st year.
The interest received on maturity is tax free.
One can review Sukanya Samriddhi Account Scheme details before investing in such tax saving investment plan.
Top#4 – Tax Saving Bank FD Schemes
This is one of the old and best investment option to save income tax under section 80C of IT act.
Currently after demonetization, interest rates have fallen. Current interest rates are between 5.5% to 7.5% per annum.
Interest received from tax saving bank FD schemes are taxable.
This plan has 5 Year Lock-in period
Some of the best tax saving FD schemes offered by banks are : Ratnakar Bank – 7.7%, IDFC Bank – 7.5%, DCB Bank – 7.5% and Union Bank of India – 6.5%.
Top#5 – Senior Citizen Saving Schemes (SCSS)
This tax saving scheme provides assured returns for Senior Citizens. Principal amount is safe as they are backed by Government.
Individual of the age of 60 years or more can open this SCSS account for tax saving purpose.
Interest rates are at 8.5% per annum.
Maturity period is 5 years.
Interest is paid at the end of every quarter. This is one of the best investment option to save tax for Senior Citizens as they would get quarterly interest.
The maximum investment limit is Rs 15 Lakhs.
Interest earned is taxable like any other fixed deposit scheme.
Premature closure is allowed after one year on deduction of an amount equal to1.5% of the deposit & after 2 years 1% of the deposit.
Top#6 – Rajiv Gandhi Equity Saving Scheme (RGESS)
RGESS offers tax benefits for first time investors who are earning up to Rs 12 Lakhs per annum.
Maximum investment allowed is Rs 50,000. Such amount can be invested in BSE100 stocks or RGESS Mutual funds.
50% of such invested amount qualifies for tax benefit u/s 80C. Means if you invest Rs 50,000 in BSE 100 stocks or RGESS Mutual funds for the first time, you would get tax exemption of Rs 25,000 for the first time and only as one time. Means you can get the maximum tax relief of Rs 7,725 (30% tax bracket).
Returns are not guaranteed as investments are made in stocks and RGESS mutual funds.
Top#7 – Voluntary Provident Fund (VPF)
Voluntary provident fund is the contribution from employee to his provident fund account. This is beyond the employee EPF contribution of 12%. However, there is no bound from employer to contribute to this VPF.
The maximum amount an employee can contribute is 100% of the Basic and DA.
This would carry the same rate of interest of the employee Provident Fund (EPF). The current EPF interest rate is 8.8% per annum.
Investment in VPF can be withdrawn only during retirement, hence it is one of the best tax saving options to save income tax.
Maturity returns are tax free.
You can also check comparision between VPF Vs EPF Vs PPF and know the differences.
Top#8 – New Pension Scheme (NPS)
This is another good investment option to save tax u/s 80C in 2017 who are looking to save for retirement.
NPS returns vary. In last 5 years, several good NPS funds gave between 12% to 14%.
This is low cost investment option. The fund management charges are very low at 0.0009% of investment value.
You can invest Rs 500 per month or Rs 6,000 per annum. There is no maximum limit for investment in NPS. However, you can invest upto Rs 1.5 Lakhs in Tier-I scheme and get tax exemption u/s 80C.
Investors have the choice to opt for allocation of equity, bonds and gilts.
Maturity amount is taxable.
One has to do some homework before subscribing to NPS Scheme.
You can review the Benefits of New Pension Scheme (NPS) here.
Top#9 – New Pension Scheme (NPS) u/s 80CCD
Beyond 80C, you can get another Rs 50,000 exemption by investing in Tier-I scheme u/s 80CCD.
Top#10 – National Saving Certificate (NSC)
National Saving Certificate is issued by Post offices and principal along with interest is backed up by the Govt. of India. Hence, these are safe investment options.
NSC’s are available for 5 year period
NSC’s are available for a minimum investment of Rs 500 and in multiples of Rs 1,000 / Rs 5,000 / Rs 10,000
There is no maximum limit for investment.
Interest rates are 8% per annum for the 5 year NSC.
Interest is compounded every half year.
Interest received is taxable. You need to show this as other income while filing ITR and pay income tax. However, such interest can be claimed again as exemption u/s 80C (within the limit of Rs 1.5 Lakhs). Means you would show as other income and exemption u/s 80C and need not pay any tax on such interest.
Individuals, Joint and minor, supported by Guardian can invest NSC.
Complete guide on National Saving Certificate (NSC) would help you to take decision to invest in this option or not.
Top#11 – Unit Linked Investment Plan (ULIP)
After 2010 IRDA guidelines, Insurance companies have reduced ULIP charges.
ULIP’s provide life risk coverage.
New ULIP policies have low policy / administration charges.
No guaranteed returns. It provides returns of 5% to 11% returns depending on the scheme.
You should hold ULIPs for 10-12 years to see good returns.
Top#12 – Life Insurance Plans
Life insurance is first step in any financial planning.
One should prefer term insurance plan as it comes with low costs and high risk coverage.
Term insurance plans come with no maturity value. These are designed for risk coverage and not for money saving purpose.
Consider adequate insurance coverage based on 10 / 15 years expenses / income.
Top#13 – Home Loan Principal Repayment
If you still not brough your dream home, you can go for one now and get tax exemption on home loan principal repayment (Interest is exempted from tax upto Rs 2 Lakhs which I would cover seperately). You are eligible for tax exemption for the repayment you make towards your home loan principal. If you do not have home, you can consider this as priority and get tax exemption too.
Top#14 – Pension Funds
Pension funds provide with an income stream post retirement. They have Deferred Annuity and Immediate Annuity.
Under deferred annuity plan, you invest annually until your retirement. Once you reach your retirement, you have can withdraw up to 60% of your accumulated corpus and have to re-invest the remaining in an annuity fund which will give you a monthly pension.
However under immediate annuity plans, you invest a bulk amount one-time and get monthly pension from the next month itself. You would typically use these to invest your retirement corpus.
Conclusion: These top 14 tax saving schemes would help you to invest under section 80C up to Rs 1.5 Lakhs and another Rs 50,000 under NPS Scheme totaling to Rs 2 Lakhs. You need not consider all options. You can consider some of these investment options which are best suitable to you based on your investment tenure, risk appetite and features indicated here.
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Top 14 Best Tax Saving Investment Options in India for 2017
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