National Pension Scheme
The NPS is a good scheme for anyone who wants to plan for their retirement early on and has a low-risk appetite. A regular pension in your retirement years will no doubt be a boon, especially for those individuals who retire from private-sector jobs.
Tax Benefits
- A tax deduction is provided on the amount contributed to an employee’s NPS account as an employer contribution, up to 10% of the employee’s salary (Basic + DA) of the employer’s contribution as a ‘Business Cost’ from the Profit & Loss Account under section 36(1)(iv)(a).
- Section 10 provides a tax exemption on a lump sum withdrawal of 60% of accrued NPS funds upon reaching 60 years or superannuation.
- Tax exemption is provided on annuity purchase or superannuation at 60 years under Section 80CCD(5). However, the subsequent income from an annuity is taxed under Section 80CCD (3).
- Partial withdrawals from NPS are eligible for tax exemption when the amount withdrawn is up to 25% of self-contribution, subject to the circumstances and criteria prescribed by PFRDA under section 10(12B).
- Tax deduction of up to 20% of gross income under Section 80CCD (1), subject to a total limit of Rs.1.5 lakh under Section 80CCE.
- Tax deduction of up to Rs.50,000 under Section 80CCD(1B), along with the overall limit of Rs.1.5 lakh under Section 80CCE.
- Employer’s contribution towards NPS of an employee is eligible for a tax deduction of up to 10% of salary, i.e. basic plus DA, or 14% of salary if such contribution is made by the Central Government under Section 80CCD (2) beyond the Rs.1.5 lakh limit provided under Section 80CCE.
- Tax deduction of up to 10% of pay (Basic + DA) under Section 80CCD (1), subject to a maximum of Rs.1.5 lakh under Section 80CCE.
Public Provident Fund
PPF meaning can be simply stated as a long-term investment scheme, popular among individuals who want to earn high but stable returns. Proper safekeeping of the principal amount is the prime target of individuals opening a PPF account. A Public provident fund scheme is ideal for individuals with a low risk appetite. Since this plan is mandated by the government, it is backed up with guaranteed returns to protect the financial needs of the masses in India. Further, invested funds in the PPF account are not market-linked either.
Tax Benefits
Income tax exemptions are applicable on the principal amount invested in a PPF as an account. The entire value of investment can be claimed for tax waiver under section 80C of the Income Tax Act of 1961. However, it should be kept in mind that the total principal that can be invested in one financial year cannot exceed Rs. 1.5 Lakh. The total interest accrued on PPF investment is also exempt from any tax calculations.
Fixed Deposits
A fixed deposit or an FD is an investment instrument that banks and non-banking financial companies (NBFC) offer their customers. Through an FD, people invest a certain sum of money for a fixed period at a predetermined rate of interest in an FD. The rate of interest varies from one financial institution to another, although it is usually higher than the interest offered on savings accounts.
Fixed deposits are available for different periods, ranging from very short-term tenures of 7-14 days to long tenures of 10 years. A fixed deposit is sometimes known as a term deposit.
Tax Saving
Tax saving deposits are a type of deposit scheme that allows you to enjoy a deduction of up to ₹1.5 lakh under Section 80C of the Income Tax Act. They come with a lock-in period of 5 years. Just like other fixed deposits, returns on a tax-saving FD are fixed for the term of the FD. They don’t change, no matter what. However, you cannot make any premature or partial withdrawals from your tax saving deposit. Any loan facility against such tax-saving fixed deposits is also not available.
Equity Linked Savings Scheme
Equity Linked Savings Scheme (ELSS) funds are a category in the mutual fund product basket which allows the investors to reap multiple benefits of investing. ELSS Mutual Funds are best known for the tax benefits they provide under section 80C of the Income Tax Act 1961. Further, the advantages of investing in equity securities are also added to it. These are open- ended equity mutual funds with a statutory lock-in of 3 years and tax benefit. They are also known as tax-saving funds.
Tax Saving
An attractive investment option under Section 80C of the Income Tax Act, which allows a tax benefit up to ₹1.5 lakh in a financial year. Statutory, lock-in period of 3 years, which is the shortest amongst all tax saving instruments. Dual benefits of capital appreciation from investments in equity along with tax-saving opportunity. ELSS provides returns aligned to the investors as per the performance of the securities in the underlying portfolio
Insurance plan
Insurance is a contract, represented by a policy, in which a policyholder receives financial protection or reimbursement against losses from an insurance company.
Tax Saving
- Life insurance premium of up to ₹1.5 lakh can be claimed as a tax-saving deduction under Section 80C
- Medical insurance premium of up to ₹25,000 for yourself and your family and ₹25,000 for your parents can be claimed as a tax-saving deduction under Section 80D
- Tax Benefit Under Section 10(10D): This section ensures that in case of an unexpected death event of the term insurance policyholder, the entire insurance amount is provided to the nominee of the insurance holder without any tax deductions imposed on it.
