Before you begin reading this, you should first figure out how much money you need to invest to save taxes for this financial year. You can invest up to Rs 1.5 lakh under Section 80C, but you might not need to invest that much. The amount of tax you can save depends on your income slab. Even then, a major chunk of the Rs 1.5 lakh would be getting exhausted by payments and expenses like your children’s school tuition fees, your home loan repayment, your life insurance premium and your mandatory EPF deduction. The amount left beyond these can be invested to save further taxes, which is what you need to calculate and come back here. Alright, so you have the number with you. You know exactly how much you need to invest to save taxes. Let’s get started then.
Just let your age be the deciding factor
If you’re 60 years old and more, you can opt for the Senior Citizens Savings Scheme (SCSS). This is a tax-saving avenue exclusively for senior citizens that currently gives returns of 8.6% per annum. This scheme is good for senior citizens because the returns are guaranteed and the capital is protected. It comes with a lock-in of 5 years.
If you’re nearing retirement, you should invest a part of the money in tax-saving fixed deposits (FD) and another part in tax-saving mutual funds (ELSS). The ratio can be 60% in FDs and 40% in ELSS, which will give you stable returns as well as growth. FDs have a lock-in of 5 years while ELSS funds have a lock-in of 3 years.
If you’re at any age below 50, which means you have more than 10 years left before you retire, you should invest all of the money in ELSS funds. These are equity mutual funds that invest at least 80% of their portfolio in the stock market.When you have more than 10 years to go for retirement, you can afford to take the risk associated with equities because only equity can give you inflation-beating returns and allow you to build wealth over the long-term.
That’s it. There are a number of other investment options like Public Provident Fund (PPF), National Pension System (NPS), National Savings Certificate (NSC) and pension plans that fall under Section 80C, but you can understand and invest in them when you have more time on hand. Do that in April.
Right now, with less than two weeks to go for the March 31 deadline, you need to make a quick decision and a quicker investment. So, just go for SCSS, FD or ELSS depending on what your age is.
This article is by ClearTax (www.cleartax.in), India’s largest tax filing website where Individuals and Businesses can e-File their I-T Returns