Tax Saving Options – 2019 Guide

9 months ago

Post date: January 2019 – Best tax saving options in India 2019

tax saving options and deductions

The last quarter of FY 2018-2019 is here. As a salaried employee, you must have received HR department memo to submit your tax saving investments by now.

If you have not done your investments, here are the investments you can do to take benefits of the tax incentives. If you want to skip to know more about any specific instrument, here is the list:

  1. ELSS – Short Lock-in period and Better returns
  2. NPS – Long term – tax benefits under 3 different sections – more tax saving
  3. PPF – Tax free interest
  4. Sukanya Samriddhi Yojana – If you have girl child of age below 10 years
  5. ULIPS – Getting out of negative press now

 

ELSS – Equity Linked Saving Scheme – Tax saving Mutual Funds

ELSS are special category of Mutual Funds. They are the ones with lock in period of 3 years and provide better returns than most of other tax saving investing options.

The introduction of long-term wealth tax has reduced their attractiveness a bit, but this 10% tax on profit comes over and above a base investment of Rs. 1 lakh.  

Considering the election year and that current government will present its last budget before election, it makes sense to spread your investment till March 31. This way, you won’t be investing in a volatile market at one go.

But, unlike other schemes mentioned here, finding a good ELSS scheme to invest in is not easy. The reason is that, there is small leeway which allows the funds to invest in instruments of their choice.

Hence the results among different ELSS scheme of different fund houses differ.

Below mentioned are the top performing tax saving mutual funds that you can chose to invest now. The data is from Value Research 

  1. JM Tax Gain – 13.51% return in last 3 years – 75% investments in large cap stocks – less volatility
  2. Mirae Asset Tax Saver – 19.06% returns in last 3 years  – 25% of their corpus is in mid- and small-cap stocks – growth possibilities
  3. Motilal Oswal Long-Term Equity – 14.26% returns in last 3 years – same as above – growth oriented.
  4. Invesco Tax Plan – 12.76% in last 3 years – large cap oriented – similar to JM Tax Gain
  5. Axis Long-term Equity – 12.38% in last 3 years – Medium risk – growth oriented

Though I have listed 5 selected funds, you don’t need to invest in them all. A growth oriented fund and a risk averse fund are good enough diversification of risk as well as leaves room for potential growth too.

Besides, there are other good stocks too. But I have listed funds based on their performance over last 3 years. As 3 years is the lock-in period of these tax saving mutual funds.

National Pension Scheme – NPS – Tax benefits under 3 different sections

First things first: NPS can help save tax under three different sections.

Firstly, contributions of up to Rs 1.5 lakh can be claimed as deduction under the overall Section 80C. Secondly, there is an additional deduction of up to Rs 50,000 under Section 80CCD(1b).

And last but not least, if the employer puts up to 10% of the basic salary of the individual in the NPS, that amount is not be taxable.

And the best part?

60% of the entire corpus that can be withdrawn at the time of retirement will be tax free. 

When you invest in NPS scheme, you have choice to allocate upto 75% to equities in the active choice option of the NPS.

You can remain invested in the scheme till the age of 70 and stagger your withdrawal as per your requirements.

There are various category of plans under NPS. You can check out the details at following links:

 

Public Provident Fund – Tax free interest

With hike in PPF interest rate in October 2018 to 8% for January to March 2019 & interest income being tax free, PPF are now better than any other form of fixed deposit scheme.

If you are planning to open a PPF account now, please open it at bank which allow online access to PPF account. I have a relative who need to travel to home branch of SBI bank to operate his PPF account. An unnecessary travel and headache.

Here is the list of private banks where you can open your PPF account. You can also open this account at your nearby Post Office branch.

Though SBI offers online facility for PPF, if something goes wrong, then their services leave a lot to be desired.

Bank offering PPF facility Online & Offline

Sukanya Samriddhi Yojana -Better returns than PPF

Sukanya Samriddhi Yojana provides tax free returns better than PPF. Like for quarter Jan-Mar 2019, the have interest rate of 8.5%. 

Though the interest rate on this scheme is revised each quarter, there is less chance of Govt. reducing it this year. Call it the election year effect.

The interest earned is tax-free. But the annual cap on investment in the scheme is Rs. 1.5 Lakh. One more thing to note is that the account has to be opened in the name if the child and it can be used for her education and marriage only. 

ULIPS – Unit Linked Insurance Plans – Return Tax free

If you choose a correct ULIP plan, than their returns being tax-free is huge bonus.

Even if you switch your scheme from equity to debt or vice versa depending on market conditions, the returns are always tax free under section 10(10d).

What you need to be careful about is choosing the right scheme. Do some research, have a word with your financial advisor and then invest in one.

Conclusion

Though there are more schemes and plans available for saving the taxes, the above mentioned ones are best of the current lot. There is limit to how much tax you can save.

Thus, the best idea is to concentrate your allowed limit to well selected few options rather then diversifying into too many investments. This way tracking and management is much better.


If you have any query, please comment below and I will try to respond asap

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