An investor has to plan accordingly based on the new tax regime introduced by the finance department recently for the financial year 2020-21. Recommend investors to stay with the old regime(model) of investing in tax saving instruments which will come handy in critical days, as saying goes forced saving is fruitful results at a later stage.
Under 80c we have following options for investors (Max investment for exemption 1.5 Lakhs)
a) ELSS(Equity Linked Savings Scheme): Here in this category of the mutual fund, your investment is locked-in for 3 years.
Example for SIP(Systematic Investment Plan): Investor started his SIP on 4-Jan-2015 ends on 4-Jan-2017. The first investment of 4-Jan-2015 is eligible for withdrawal on 5-Jan-2018 and the last SIP od 4-Jan-2017 is eligible for withdrawal on 5-Jan-2020.
Top funds for the financial year 2020-21
1) Axis Long Term Equity Fund(G) (Direct Fund)
Last 3 years CAGR:5.34%, absolute returns:16.90%
2) Mirae Asset Tax Saver Fund(G) (Direct Fund)
Last 3 years CAGR:3.60%, absolute returns:11.20%
Note:* Returns are post-market crash in April 2020
b) EPF(Employee Provident Fund): This is applicable for salaried professionals, who have opted for PF contribution. This gets deducted from your CTC(Cost To Company) and contributed as employee and employer.
c) HRA(House Rent Allowance): This can be availed only to salaried individuals who have an HRA component in their salary structure and are also staying in a rented house.
Note: If you are paying an annual rent of 1 Lakh and above you have to provide landlord PAN number to your employer.
d) Sukanya Samriddhi Yojana: This scheme is for girl child aged below 10 years. An account can be opened for two girl children one account per girl child and can open third if twins are involved in any of the cases.
e) LIC(Life Insurance Corporation): All kinds of premium payments towards all life insurance policies are considered under this section of 80c. Max of 10% of sum assured will be eligible for tax-deductible from April 2012. Example If the total sum assured of your policy is 2,50,000 (Two Lakh Fifty thousand). Max amount eligible for the exemption is 25000 (Twenty Five Thousand only).
f) Housing Loan Repayment Principal(Max: 1.5 Lakh): Individual repaying the principal on a home loan is eligible for this tax exemption. To claim this construction of home should be complete and if you transfer/sold the property before 5 years from the date of the year you have taken the possession, no tax benefits will be given and the year in which property is transferred/sold all the previous tax claimed amount will be taxable.
g) Fixed Deposits in Bank: Investor has to invest in tax saving fixed-deposit for 5 years to claim this tax exemption. No premature withdrawal is allowed here, although you can loans and overdraft on this investment made. Interest earned on this investment is again taxable which is not so best investment option.
h) Post Office deposits or NSC(National Saving Certificate): Again both investments in NSC and Fixed deposit in the post office are for 5 years to be eligible for tax exemption. Profit/Interest earned here will again be taxed.
i) PPF(Public Provident Fund): PPF account can be opened with any bank and the maximum amount eligible for tax exemption is (1.5 Lakhs). If your investing monthly invest before 5th to receive interest for that current month, else it will be considered next month onwards. Profit/Interest earned here compounds every year and it is completely tax-free when withdrawn. Lock-in period here is 15 years, although you can do partial withdrawal after 5 years of investment.
Always plan for your investments at the start of the financial year as this brings in discipline into your investment, above are widely used tax-saving investment options for investors. Do reply with your feedback or any suggestions.