There is no such thing as a good tax’- Winston Churchill
April is the starting month of the new financial year for computing the tax. Here we summaries our take on the tax saving options and general to do’s & don’ts while saving for the tax under 80C limit where you can invest up to Rs. 1,50,000/- .
PPF is a must have investment option for its unique benefit of EEE (Tax exemption at investment, interest earned is exempted & maturity proceeds are exempted) as well as it’s handy to complete the 80C limit whenever it is needed. It’s much easier to keep the account active with minimum Rs.500 payable for a year. You can even open the PPF account online through SBI or ICICI Bank.
For salaried person contribution to EPF has been mandatory and for the most it forms major chunk of 80C investment. Tracking & maintaining of the EPF should be given a priority. Our clients who get their financial plan done through us, we see that EPF funds their major part of their retirement corpus.
Contribution to PPF is voluntarily and EPF is mandatory. In the course of a career if one decides to be on his own or a consultant having an active PPF account is a boon to replicate the retiral like in EPF. It is also forms a dynamic part of debt asset allocation having a major advantage over bank Fixed deposits.
The investment in Equity Linked Saving Scheme (ELSS) gives a zing to investment portfolio; the average category return has been 26% for last 10 years. Compare this with other option of average 8% returns, you get the answer. Taking that calculated risk is beneficial for the long term. After mandatory EPF & minimal PPF contribution we suggest ELSS for the balance investment.
Very commonly invested Life insurance contribution is also a part of the 80C. The insurance should be taken after understanding the exact need analysis.
The much hyped scheme in the recent budget is NPS for the tax sops being offered. It is worthwhile to see the benefits in actual terms than getting carried away by the tax benefits alone.
The equity component in NPS is capped maximum at 50% of your contribution. You need to select a fund manager out of 6 designate fund manager. In our view the performance of these funds will be never able to beat the performance of a plain vanilla good diversified equity mutual fund in longer run.
Another major drag of NPS is the compulsory annuity option at the maturity and it is taxable in your hand. This itself puts NPS on the backseat compared to PPF, EPF & ELSS option where maturity proceeds are tax free.
To summaries the options for tax saving, one will be better of with mandatory EPF or voluntary PPF. The balance should go in ELSS depending upon the risk appetite and should complement this with the Insurance if needed.