Insights

FundsIndia Explains: Section 80 C investments

November 7, 2016 . Mutual Fund Research Desk

Personal Finance . Simply Important

Reducing taxes is at the forefront of our minds. Section 80 C plays the most important role in our tax-saving efforts. The list of deductions allowed under Section 80C is long. Broadly, they fall into three groups – those based on investing, those based on protection (i.e. insurance), and those based on spending.

Investment options
For the purpose of wealth creation, obviously, the options that incentivise investments are the ones that matter. Here’s listing them out.

			Your 80C investment options
Product	Lock-in period	Where it invests	How returns are generated	Tax on returns	Past returns/ Interest rate
Equity-based options
Equity-linked savings schemes (tax-saving mutual funds)	3 years	Stock markets, across market capitalisations	Capital gains on appreciation in NAV	Nil on holding for over 1 year	21.1% average annualised return in the past 3 years
Mutual fund pension plans	3 years/ 5 years, depending on the scheme	Combination of stock market and debt instruments, depending on the scheme	Capital gains on appreciation in NAV	Nil on holding for over 1 year	18.8% average annualised return in the past 3 years
Nation Pension Scheme*	Until age 60	Combination of stocks, corporate debt, and government debt, depending on individual choice	Capital gains on appreciation in NAV	At least 40% has to be converted to annuties, which are taxed at slab rates. Maximum of 60% allowed to be withdrawn post retirement. 40% of withdrawal tax-free, 60% taxed.	Equity: 16.5% Corp. Debt: 12.8%, Govt debt: 14.7% average 3-year annualised returns
Debt-based options
Public provident fund	15 years	Forms a part of Govt borrowings and deployed as per Govt. requirements	Interest compounded annually, rates adjusted quarterly based on G-Sec rate	Nil tax on interest and on withdrawal	8.0%, for now
Employee provident fund/ Voluntary provident fund	15 years (employer contribution), or for period of employment (employee share)	Government and PSU bonds	Interest, rates declared at the end of each fiscal, depending on surplus generated	Nil tax on interest and on withdrawal	8.8% for 2015-16
5-year bank deposits	5 years	Deployed as bank sees fit	Interest compounded quarterly, rates adjusted by individual banks depending on rate cycle	Interest is taxed at slab rate,TDS applies if annual interest for all deposits crosses Rs 10,000	7.5% to 7.7%, for now
5-year post-office time deposit	5 years	Forms a part of Govt borrowings and deployed as per Govt. requirements	Interest compounded quarterly, adjusted quarterly based on G-Sec rates	Interest is taxed at slab rate	7.8%, for now
National Savings Certificates	5 years	Forms a part of Govt borrowings and deployed as per Govt. requirements	Interest compounded annually, adjusted quarterly based on G-Sec rates	Interest is taxed at slab rate	8.0%, for now
Sukanya Samriddhi Scheme**	Until account holder (i.e., the daughter) reaches 21 years of age	Forms a part of Govt borrowings and deployed as per Govt. requirements	Interest compounded annually, adjusted quarterly based on G-Sec rates	Interest and withdrawal exempt (as the daughter receives it)	8.5%, for now
Senior Citizen Saving Scheme**	5 years	Forms a part of Govt borrowings and deployed as per Govt. requirements	Interest compounded quarterly, adjusted quarterly based on G-Sec rates	Interest is taxed at slab rate, TDS applies if interest crosses Rs 10,000 in a fiscal	8.5%, for now
Note:
*NPS has an additional Rs 50,000 deduction under Section 80CCD
**The Sukanya Samriddhi Scheme can be opened only in daughters' names, while SCSS can be opened only by those above 60 years