It may not be exactly the end of the calendar year, but, many individuals would have already begun planning for tax saving instruments. The limit under section 80C for tax saving instruments has been enhanced to Rs 1.5 lakh in the Union Budget for 2014-15 from the earlier Rs 1 lakh. We take a look at a few of the best tax saving instruments that are currently available in India.

Public Provident Fund

PPF is the best tax saving instrument that is currently available for 2 reasons. One is that it not only gives you tax exemption under Sec 80C, but also the interest income that you receive from PPF is completely exempt from tax. The drawback of the PPF, however, remains the lock-in period, making it a highly illiquid instrument. The other drawback is that trusts and NRIs are not allowed to invest in.

Bank Tax Saving Fixed Deposits can offer you better interest rates than PPF, but, the interest income is taxable. So, if you are in the highest tax saving bracket, it makes sense to consider another instrument like PPF, which is highly tax efficient.

ELSS Funds

Equity Linked Saving Schemes (ELSS) also provide tax benefits under Sec 80C of the Income Tax Act. However, the problem with ELSS is the fact that the money is invested in equity shares. So, there is no certainty that you would make money. On the other hand it is also likely that you could make substantially higher money then bank deposits and PPF, since equities may give superior returns. You can go for it, if you have the appetite to take risk.

National Saving Certificates

The NSC is a very safe post office scheme. The problem of NSC is that the interest rates are almost at par with PPF. But, the advantage of PPF is that the interest is tax free, whereas under NSC it is fully taxable. Again, the lick-in period makes the scheme a little unattractive.

Life Insurance Products

Then there are the usual life insurance products that help you save tax. These include ULIPs, term plans, endowment plans etc. This is a must have product, not because it gives you tax breaks, but, more because they help provide protection to the family in the form of insurance.

Conclusion

The type of tax saving instrument would depend on your tax bracket, ability to take risk and time frame. If you are looking at long term, then the best offering has to be the PPF.

GoodReturns.in