Equity Linked Saving Schemes (ELSS)
ELSS is an open-ended Equity Mutual Fund that provides investors with an opportunity to grow their money along with tax saving benefits. This scheme invests 65% in equity related instruments that are notified to avail benefits under section 80c.
As the scheme invests in equity instruments, over a period of time it would help you grow wealth.
We have a temptation to withdraw yield as soon as we can, ELSS come with a lock-in period of 3 years forcing you to keep the amount invested for a minimum duration of 3 years. This would allow your money to grow considering market fluctuations.
If you consider investing in ELSS, you stand eligible for an exemption up to Rs. 1 Lakh under section 80c. This is a good investment opportunity for those who have a significant amount left to be exhausted under 80c investment.
ELSS is the only tax saving investment that gives tax free returns for a shorter period. As ELSS invests in equity related instruments, it is classified in equity funds and any return that is received from equity funds after 1 year is tax free. ELSS funds have a lock-in period of 3 years, hence, capital gains are also tax free.
Unit Linked Insurance Plans (ULIPs)
ULIP is a kind of insurance plan offered to policy holders that acts as insurance policy giving investors dual benefits under a single plan. The integrated plan offers features of both insurance and investment. By investing in a ULIP, policyholder will procure units at their Net Asset Value (NAV) and make contributions towards other investment tools such as stocks, bonds and mutual funds.
Range: It offers you a wide choice of investments, so that based on your need and risk appetite you can invest in pure equity, debt or select a right mix of both these funds.
Planned Investment: ULIPs encourage systematic investment. When you consider investment in small doses, over a time period it allows you to gain maximum benefits from rupee cost averaging and also saves your investment from market fluctuations.
Flexibility: In most of the cases you can choose the life cover and desired premium amount. Also, with limited hassle you can switch funds as per your preference.
Transparency: The investment is completely transparent. You can anytime view the details of your funds and can easily track its performance.
Liquidity: What if due to some emergency you have to withdraw the fund? ULIPs allow you to surrender policy after completion of 5 years and you can withdraw the amount without paying any sort of penalty or additional charges.
ULIP investment qualifies for tax exemption under section 80 C of Income Tax Act and hence you can save up to Rs. 1,50,000. The premium that is paid for the policy will be added to the other eligible investments to get an idea of the total benefits.
In case of death of the policyholder, the amount received by the nominees is totally tax free in their hands.
In the case of proceeds received from maturity of the ULIP, it is classified as a payout from the insurance policy under Section 10 (10D), here the entire amount will be tax free in the hands of the receiver.
National Pension System (NPS)
NPS is a pension scheme offered by Government of India where, you can regularly invest in this scheme and get a part in lump-sum at your retirement and it gives fixed monthly income for the lifetime. It has proved to be common man's doorway to getting pension benefits post retirement.
It is a cost effective mode of planning for one's retirement, the cost structure is far more efficient when compared with charges levied by mutual funds or other investment options.
Investment in NPS is highly safe and it contains very less amount of risk – these schemes were launched in May'09 and have yielded about 12% annualized return.
Government provided pension plan directly regulated by PFRDA, hence it comes with utmost safety.
The exemption on tax here is given special treatment with additional Rs. 50,000. Apart from 1,50,000 under section 80c, NPS qualifies for additional 50,000 under section 80 CCD (1B). However, withdrawal from NPS is liable for tax unlike other tax-free retirement savings schemes like public provident fund (PPF) and employee provident fund (EPF).
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Rajiv Gandhi Equity Saving Scheme (RGESS)
To inculcate saving habits in small investor, government launched RGESS in 2012. The intention is to encourage people to invest in domestic market, particularly the segment of investors who have never been exposed to the equity market. If you are an Indian resident with annual income of less than 12 Lakhs and have never invested in equity, you are eligible to opt for Rajiv Gandhi Equity Savings Scheme. The scheme allows first time investors to invest up to Rs 50,000 in approved stocks and Mutual Funds. To invest in RGESS you have to open a demat account and submit Form A that would designate the account to RGESS.
Gains, arising of investments in RGESS are allowed to withdraw after a year.
You can easily invest in installments.
Investors can avail the taxation benefits for three successive years.
Dividends are tax free.
By investing in Rajiv Gandhi Equity Saving Scheme you can claim income tax deduction on 50 percent of the investment under Section 80 CCG of the Income Tax Act. This is over and above the Rs 1.5 Lakh limit provided under section 80 C. Though there is no limitation of investment amount through the demat account, but tax benefit will only be available on an investment of up to Rs 50,000.
Tax Free Bonds
As the name suggests, Tax-free Bonds are financial instruments which offer Tax relief to the investors by way of exemptions in Income Tax. These bonds have emerged as a popular choice among investors due to the taxation benefit it offers. Tax-free bonds are generally issued by government enterprises and have a fixed interest rate. As the proceeds from the bonds are invested in infrastructure projects, they have a long-term maturity of typically 10, 15 or 20 years. Being liquid, these bonds are tradable in the secondary market and are listed on exchanges. They carry credit ratings from one of the rating agencies approved by SEBI as well as Reserve Bank of India (RBI).
These bonds have very low default risk as they are issued by government-backed entities.
Credit agencies rate these instruments after assessing the financial health of the entities issuing the bonds.
The minimum denomination can be from as low as Rs 1,000.
At times when bank fixed deposit rates are coming down, tax-free bonds are an attractive option.
Retail investors can invest up to Rs 10 lakh in each issue.
Investors can exit from these tax-free bonds before maturity by selling them on stock exchanges.
These bonds are completely tax free but capital gains made on selling of tax-free bonds on stock exchanges are taxed. If the holding period is less than 12 months, capital gains on sale of tax-free bonds on stock exchanges are taxed as per the tax slab of the investor. If bonds are held for more than 12 months, the gains are taxed at 10 per cent.
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Other Tax Saving solutions
-Public Provident Funds (PPF)
-Provident Fund (PF)
-Senior Citizens Saving Schemes (SCSS)
-Bank Fixed Deposits (FD)
-National Saving Certificates (NSC)