Tax Planning: Debt Product in Section 80C

Tax Planning: Debt Product in Section 80C

We have witnessed a sharp market rally in last couple of months due to stable and much awaited leadership. The next big event is union budget which is coming next month July. There may be some changes regarding tax exemption in this coming budget. Let us discuss about the currently fixed income instrument available option under section 80C. However I always recommend ELSS scheme is good option available under section 80C if you have risk appetite for equity market and have a long term vision. Today we are going to discuss only about fixed income instrument.

Under section 80C, there are many options available like PPF, EPF, NSC, Post Office Time Deposit and 5 year tax saving bank FD. Before choose any option you should also understand liquidity and tax treatment of particular option which you are going to choose along with return.

Employee Provident Fund (EPF):

In this option employer deduct every month 12 % of your basic salary and deposit the deducted amount in your provident fund account. At present it gives return of 8.5%, the rate of interest rate announce every year by the government of India. The maturity amount and accrued interest during the entire investment term is tax free.

Public Provident Fund (PPF):

 In this option you can contribute any amount but your tax exempt limit is Rs 1 Lakh including all investment option under section 80C. The lock in period is 15 year and maturity amount is tax free. At present it offer 8.7% return. The rate of interest is announced every year by the government of India. The maturity amount and earned interest during the investment period both are tax free.

National Saving Certificate (NSC):

 It comes with 5 year and 10 year fix term. The 5 year NSC offers 8.5% and the 10 year NSC offer 8.8% fix return. The return of NSC is taxable. Every year earned interest is taxable and maturity is also taxable. If accrued interest during the investment time is not declared every year in IT return then the accrued interest amount for all years is taxable at the time of maturity according to your income tax slab.

Post Office 5 year Time Deposit:

 It offers 8.4% return and lock in period is 5 year. The accrued interest during the tenure and maturity both is taxable as per your tax slab. However, tax not deducted at source. You should specify it your IT return.

Tax Saving 5 year Bank FD:

 It is bank fixed deposit with lock in period 5 year. The banks offer the return between 8.5% to 9% range. The bank deducts the tax every year from your earned accrued interest. So the accrued interest and maturity is taxable.

After reading about above mentioned fixed income instruments, you can easily find out that except EPF and PPF all instruments are taxable. So before investment in the above mentioned instruments calculate your real rate of return after paying the tax. It is very clear that none of the above mentioned instrument beat the inflation.

If you want more information regarding investment or you have any other query about investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in