The financial year is coming to an end and so you must determine where to invest so as to get optimum return and tax benefits. Even though the primary objective is to save taxes you also want that your investments earn good returns. This article is an attempt to analyze the various tax saving investments available and the annual returns that it earns.

2. The financial year is coming to an end and so must
determine where to invest so as to get optimum
return and tax benefits. Even though the primary
objective is to save taxes you also want that your
investments earn good returns. This article is an
attempt to analyze the various tax saving
investments available and the annual returns that
it earns.

3. Employee provident fund (EPF) is the most
common tax saving investment. Most of the
employees contribute to EPF. EPF investment is
eligible for deduction up to Rs.1 lakh.
Return on investment: 8.75% p.a.
Point to remember: You should note down the
yearly contribution to your EPF account so that you
know how much more is to be invested for
claiming the Rs.1 lakh exemption under section
80C.

4. You can invest up to Rs.1 lakh in Public provident fund
(PPF) and the entire amount can be claimed as
deduction under section 80C. Even the interest
received and the maturity amount are totally exempt
from tax. Tenure of PPF investment is 15 years.
Return on investment: 8.7% p.a.
Point to remember: PPF interest is calculated by 5th of
every month. So, if you want to receive interest for the
entire month, invest before that date.

5. Investment in National Savings Certificate (NSC) is also tax
deductible under section 80C subject to the maximum limit of
Rs.1 lakh. The tenure of NSC is 5 year or 10 year and you can
invest in either of the two.
Return on investment: 8.5% p.a. for 5 year investment & 8.8%
p.a. for 10 years investment.
Point to remember: The entire interest on NSC is received on
maturity, but the yearly interest has to be declared every year
in your income tax returns and tax has to be paid on it.
Carefully evaluate the lock-in period and the taxability before
opting for investment in NSC

6. RGESS (Rajiv Gandhi Equity Savings Scheme) is the latest tax
saving option. It offers tax saving over and above 80C limit.
This investment is available only to first time equity investors
having income up to Rs.12 lakh p.a. The maximum that can be
invested is Rs.50,000 and the tax deduction is up to Rs.25,000.
Return on investment: 10-12% p.a.
Point to remember: RGESS is not so easy to understand as the
fixed deposit. For first time investors, it is advisable to invest in
simple schemes rather than investing in the equity market.

7. Fixed deposits (FD’s) with investment tenure of 5 years of
more are eligible for tax deduction under section 80C. It is
preferred my many as it is simple to understand and is hassle
free for investment.
Return on investment: 8.5-9.5% p.a.
Point to remember: To avail tax benefit on FD investment
there is a lock-in period of 5 years. So you must evaluate your
decision carefully before investing as your interest rate
remains fixed for the entire tenure and you cannot take the
benefit of if interest rates increase later on.

8. New pension system is considered one of the cheapest
retirement products. The tax benefits on NPS are – 1) Own
contribution under 80CCD (1) up to Rs.1 lakh p.a. and 2)
Employer contribution under 80CCD (2) with no upper limit.
Return on investment: 8-12% p.a.
Point to remember: Those who are already investing in EPF
should not consider investing in NPS if it is just for tax saving.
Also note that it has an equity investment limit of 50%.

9. Equity Linked Savings Scheme are also deductible
under the 80C limit. There is a lock-in period of 3 years
and you cannot withdraw your money earlier. These
are diversified equity mutual funds which also offer tax
benefits.
Return on investment: 8-10% p.a.
Point to remember: It is better to avoid investing in
ELSS if you don’t have knowledge about investment in
mutual funds. Investing in ELSS without proper
research can even erode your capital.

10. Senior citizens savings scheme is also a part of section
80C. It is available to senior citizens i.e. citizens above
60 years. This post office product has a maturity period
of 5 years which can be further extended by 3 years
after maturity.
Return on investment: 9% p.a.
Point to remember: You cannot withdraw from SCSS
before 5 years and the only option is premature
closure of the account after 3 years.

11. Life insurance and health insurance offer tax benefits under section
80C and section 80D respectively. The premium amount of all life
insurance policies can be claimed under 80C while premium paid for
health insurance is to be claimed under 80D. The maximum
deduction for Health Insurance premium is Rs.15,000 p.a. for citizen
below 60 years and Rs.20,000 for senior citizen. Premium for health
insurance of your parents can be claimed over and above this limit.
Return on investment: 5-6% p.a.
Point to remember: For claiming tax benefit under insurance there is
a condition that the premium amount should not exceed 10% of the
sum assured to be eligible for this deduction. Avoid investing in life
insurance policies which mix insurance and investment as the higher
charges and other restrictions will result in lower returns on
investment.

12. These various tax saving instruments are available.
But before choosing amongst them, remember
that these are also long term investments and so
should optimize your tax saving and return on
investment.

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