Tax Saving 2015-16
Investments which qualify for tax saving 2016-17 may not be same going forward. They ten to change year on year and the limits for each of them also change over the time. With the events of late 2016, it is being speculated that there will be drastic changes in the tax laws. While I personally do not see any structural changes in the Income tax laws, the components are likely to undergo change.
Below is list of investments qualifying for tax saving 2016-17.
- ELSS (Equity Linked Savings Scheme) – Maximum limit is 1,50,000 within the overall limit of section 80C. I personally like it as they offer good returns with minimum lock in period.
- Provident Fund – (Both EPF / PPF) Maximum limit is 1,50,000 within the overall limit of section 80C. They offer fixed return of around 8%. However, the Lock in period is considerably High.
- NPS : There are two components for this and with again sub division. Maximum limits change based on section. extremely high on lockin period, but offer considerable returns over time. I like them due to the fact that this instrument leads to comfortable life after retirement. The overall benefit under this can be (150000+50000+10% of salary). This becomes extremely useful when you exhaust your options under 80C
- within section 8o C – Maximum limit is 1,50,000 within the overall limit of section 80C.
- In addition to the 80C, there is an additional benefit of 50,000 can be claimed under Section 80CCD(1)
- Further, a maximum of 10% of the salary can be considered Provided, the contribution is from the employer.
- Pension Plans – These offer a steady income but poor on returns. Moreover, the pension offered is taxable. Very poor performance due to poor post tax performance.
- ULIPs – Unit Linked insurance plans offer some good returns.But rank low due to the high costs and long lock in periods. Maximum limit is 1,50,000 within the overall limit of section 80C.
- Insurance Policies. – While they offer tax benefits, they rank very very poor in terms of post tax returns. At least term plans offer a purpose for the amount spent.
- Long Term bank FDs /NSC/Long Term RD – Maximum limit is 1,50,000 within the overall limit of section 80C. Returns are lower and also taxable. Poor performance due to low post tax returns. Senior Citizens schemes offer little better returns under this category but still not comparable with Equity oriented savings.
When you look for tax saving, do not forget the post tax performance of the investments. Look for long term and stability. Equity oriented schemes are really good investments. Consider them if you are looking at good returns. Plan in such a way that you exhaust all the limits for investments.