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FundsIndia Explains: Section 80 C investments

November 7, 2016 . Mutual Fund Research Desk

Reducing taxes is at the forefront of our minds. Section 80 C plays the most important role in our tax-saving efforts. The list of deductions allowed under Section 80C is long. Broadly, they fall into three groups – those based on investing, those based on protection (i.e. insurance), and those based on spending.

Investment options
For the purpose of wealth creation, obviously, the options that incentivise investments are the ones that matter. Here’s listing them out.

Your 80C investment options
ProductLock-in periodWhere it investsHow returns are generatedTax on returnsPast returns/ Interest rate
Equity-based options
Equity-linked savings schemes (tax-saving mutual funds)3 yearsStock markets, across market capitalisationsCapital gains on appreciation in NAVNil on holding for over 1 year21.1% average annualised return in the past 3 years
Mutual fund pension plans3 years/ 5 years, depending on the schemeCombination of stock market and debt instruments, depending on the schemeCapital gains on appreciation in NAVNil on holding for over 1 year18.8% average annualised return in the past 3 years
Nation Pension Scheme*Until age 60Combination of stocks, corporate debt, and government debt, depending on individual choiceCapital gains on appreciation in NAVAt least 40% has to be converted to annuties, which are taxed at slab rates. Maximum of 60% allowed to be withdrawn post retirement. 40% of withdrawal tax-free, 60% taxed. Equity: 16.5% Corp. Debt: 12.8%, Govt debt: 14.7% average 3-year annualised returns
Debt-based options
Public provident fund15 yearsForms a part of Govt borrowings and deployed as per Govt. requirementsInterest compounded annually, rates adjusted quarterly based on G-Sec rateNil tax on interest and on withdrawal8.0%, for now
Employee provident fund/ Voluntary provident fund15 years (employer contribution), or for period of employment (employee share)Government and PSU bondsInterest, rates declared at the end of each fiscal, depending on surplus generatedNil tax on interest and on withdrawal8.8% for 2015-16
5-year bank deposits5 yearsDeployed as bank sees fitInterest compounded quarterly, rates adjusted by individual banks depending on rate cycleInterest is taxed at slab rate,TDS applies if annual interest for all deposits crosses Rs 10,0007.5% to 7.7%, for now
5-year post-office time deposit5 yearsForms a part of Govt borrowings and deployed as per Govt. requirementsInterest compounded quarterly, adjusted quarterly based on G-Sec ratesInterest is taxed at slab rate7.8%, for now
National Savings Certificates5 yearsForms a part of Govt borrowings and deployed as per Govt. requirementsInterest compounded annually, adjusted quarterly based on G-Sec ratesInterest is taxed at slab rate8.0%, for now
Sukanya Samriddhi Scheme**Until account holder (i.e., the daughter) reaches 21 years of ageForms a part of Govt borrowings and deployed as per Govt. requirementsInterest compounded annually, adjusted quarterly based on G-Sec ratesInterest and withdrawal exempt (as the daughter receives it)8.5%, for now
Senior Citizen Saving Scheme**5 yearsForms a part of Govt borrowings and deployed as per Govt. requirementsInterest compounded quarterly, adjusted quarterly based on G-Sec ratesInterest is taxed at slab rate, TDS applies if interest crosses Rs 10,000 in a fiscal8.5%, for now
Note:
*NPS has an additional Rs 50,000 deduction under Section 80CCD
**The Sukanya Samriddhi Scheme can be opened only in daughters' names, while SCSS can be opened only by those above 60 years

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