Income Tax Saving Options / Instruments in India : 2012

With financial year FY 2011 - 2012 ending soon, tax savings is usually a big headache. Where to invest, how much is the return and other questions boggles our mind. Hence InvestorZclub has compiled a list of instruments which would help you in knowing the products that can save you tax and generate good returns on your investments

Employee Provident Fund: EPF (80 C)

As pet IT Act 80C, EPF scheme offers a total yearly exemption of INR 1 lakh. In this fund, 10 % to 12 % of a person's basic salary gets deducted and the other 12 % is contributed by the employer.

Average returns: 9.5%

Maturity period: One can withdraw the entire amount in instances of leaving job, retirement after 58 years of age or taking VRS. Partial withdrawal can be done for home, medical related expenses.

Public Provident Fund : PPF (80 C)

PPF is also a tax saving option that falls within the Section 80 C of the Income Tax Act in India. However the maximum amount that one can deposit in a single year is 70,000.

Average returns: 8.6% compounded annually

Maturity period: 15 years


National Savings Certificate : NSC (80 C)

NSC scheme falls under the Section 80 C of the IT Act of India. Annual interest earned is deemed to be reinvested and qualifies for tax rebate for first 5 years. The scheme is available at Banks, post office or any broker.

Average returns: 8% compounded half yearly

Maturity period: Usually 5-10 years.


Equity Linked Savings Schemes : ELSS (80 C)

ELSS is a mutual funds that help you save taxes under Section 80C as well as generate equity based returns. ELSS is similar to a typical equity MF scheme. It has the potential to deliver good returns and at the same time save tax.

Average returns: Based on Market performance

Maturity period: Lock in period of only three years but one can remain invested for long.


Unit-linked Insurance Plans : ULIPs (80 C)

ULIP is a unique blend of investment and insurance and is eligible for 80C benefits. The premium, which is being paid by a customer, gets deducted with initial charges while the rest of the amount is invested. Aggressive ULIPs invests 80 % to 100 % in equities. The rest is invested in debt instruments. Under balanced ULIPs an individual can invest 40 % to 60 % in equities while conservative ULIPs allows one to invest up to 20 % in equities

Average returns: As per market situation

Lock-in period: 5 years


Tax Saving Deposits (80 C)

Investment up to Rs 1 lakh in these special tax saving bank fixed deposits also entails an investor tax deduction under Section 80C. Interest income taxability upon maturity.

Average returns: 9-9.5% annually. Rate of interest varies from one bank or post office to another.

Lock-in period: 5 years


Infrastructure Bonds (80 CCF)

Over and above the deduction allowed by the Section 80 C, one can save income tax on a maximum amount of Rs 20, 000, by investing in different infrastructure bonds under the Section 80 CCF of the Indian I-T Act. L&T, REC, IDFC are some of the large issuers of infrastructure bonds

Maximum deduction: Rs 20,000

Average returns: The rate of interest  varies from 8 % to 8.7%.

Maturity period: 5 to 10 years.


Life Insurance Premium (80 C)

Any premium payable by an investor to provide cover to his life is eligible for deduction under Section 80C.

Average returns: 6-7% annual in a typical endowment policy. However term policies do not provide any return, as they are meant for cover only.

Maturity period: Length of policy.


Health Insurance Premium (80 D)

Under section 80 D of the country's Income Tax Act. these policies offers a maximum deduction of Rs 35, 000. This deduction is calculated in addition to any other tax saving done as per the Section 80 C.