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Saturday 15 February 2014

Which tax saving schemes invest before 2014 March 31?

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Tax Saving Schemes invest in 2014

 

It's once again that time of the year, when you have to make an investment choice to save tax under Section 80C of the Income Tax Act. Taking a decision on the type of instrument depends on your own needs and ability to take risk. We take a look at which instrument are a good choice and under what conditions.

 

Equity Linked Savings Scheme (ELSS)

One can opt for an Equity Linked Savings Scheme or ELSS only if one has a penchant for risk. Since the money is invested in the stock markets, chances are you may get returns that are even negative. So, you might end up saving 10, 20 or 30 per cent in tax and lose the amount by way of fall in stock prices in the Scheme. At the same time it's possible that you even get superlative returns. The lock-in period of only 3 years makes it attractive.

 

If you do not have an appetite for risk, this scheme is best avoided.

 

 

Life Insurance premium

Now, most folks invest in life insurance to save tax. It's best to avoid investing in life insurance if you are already adequately protected and merely to save tax. Returns from life insurance schemes are very poor and one need not block money here, if one has adequate protection.

 

 

Tax Saving Bank Fixed Deposits

Tax Saving Bank Deposits offer interest rates of around 9-9.5 per cent. But, the problem with these instruments are two fold: the first is that the interest received on these instruments, unlike PPF is taxable. The second is that the lock in period of 5 years is pretty high. However, if you want returns higher than PPF (pre-tax), this should be the choice, because they also come with safety, unlike ELSS.

 

 

Public Provident Fund (PPF)

PPF offers much lesser interest rates than banks, but, the interest earned is tax free and if you are in the highest tax bracket the returns are much superior to tax saving bank fixed deposits. The only problem with PPF is the lack of liquidity as partial withdrawals are permitted after the 7th year only.

Clearly, the type of instrument you want to choose would depend on your needs, duration and ability to take risk.

 

 

 

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

 

 

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