Six Well-Known Ways to Invest 1 Lakh Rupees to Save Tax

Planning to cultivate the habit of investing? Well, if you are, here is one more reason for you to start investing soon: the Indian government does not tax investments up to Rs. 1 lakh.

However, this deduction is allowed on amounts invested in areas specified under 80C of the Income Tax Act. For an individual falling in the highest tax bracket, taxed up to 30% of income, this isn’t a bad deal. You can save up to Rs. 30,000 in tax per year for the Rs. 1 lakh invested.

So, if you are planning to save your hard earned money from the clutches of the Tax-man, here are some schemes that fall under 80C, which will help you invest and get tax exemptions:

6 Great Schemes to Invest Under 80C

SIPs and Mutual Funds: Investing a fixed amount in SIPs and mutual funds is a good way to earn profits and to save money from taxation. Under 80C, investing one lakh rupees in mutual funds are tax exempt.

Putting money in mutual funds is a bit risky because these funds earn income by trading on the stock market. There is also a lock in period of 3 years during which you cannot withdraw the money. But mutual funds give you handsome returns.

Some of the mutual funds that are eligible for tax deductions are HDFC Tax Saver, SBI Magnum Tax Gain, HDFC Long term advantage, etc.

Public Provident Fund: Public Provident Fund is an investment option that will generate moderate to good income. A major advantage of PPF is that it is secure. It is an option for new investors who are still risk averse. The maximum amount that a person can invest in PPF in a year is Rs. 1 lakh.

The interest earned on PPF is not taxed by the government. This means that you get dual benefit from PPF; no taxation on the Rs. 1 lakh deposited each year in PPF, and no tax on interest received from PPF.

PPF fund gives you 8.6% per annum and the lock in period is 15 years. The interest adds up to 11.43% for the high income group considering the Rs. 30,000 saved on Rs. 1 lakh from taxation.

Pension Funds: Investing in the New Pension System introduced by the Pension Fund Regulatory and Development Authority of India, helps you to save money by tax deduction. This fund also helps you to receive income after retirement. However, the fund is taxable on withdrawal.

It is a secure fund, which is flexible and can be transferred from one branch to another with change of your location and job. Anyone from 18 years to 55 years can invest in this fund.

The minimum amount you must invest per year is Rs. 6000. The annual fee is negligible amounting to only 0.00009%!

National Savings Certificate: The Postal department and government of India issues NSC. It provides 8% interest compounded half yearly giving you a good return with safety. Actually, compounding helps you gain 8.16% per annum.

The duration of NSC is for 5 years. It is issued in denominations of Rs. 100, Rs. 500, Rs. 1000, Rs. 5000.

There is also no maximum limit for investment making it an ideal investment option for those who wish to invest a large amount. Though, it should be noted that you will only get tax exemptions for the initial one lakh investment. The interest earned is taxable.

Fixed Deposits: Investors choose fixed deposits to invest money when banks offer high interest rate. They study the market and make sure that rates will remain high till the maturity period is over.

Furthermore, investors must be willing to part with the money for the time-period, which is usually 5 years, because premature withdrawals lead to loss.

Not all FDs provide deductions from taxation. You must make sure that the bank offers tax deducting FDs under 80C of income tax act. However the interest rates on the deposit is subject to tax.

Life Insurance: Life insurance premium is deductible from taxation. An amount of Rs. 1 lakh paid for different policies can all be taken for tax deduction. This facility is available for insurance taken for you, your wife and children only.

Life insurance policies of every insurance company come under section 80C.

Everybody wishes to save their hard earned money from taxation and to make the maximum gain from it. Therefore, investing in tax saving schemes helps you to save money and to profit from the investments.

Related posts:

• Four Easy Ways to Save Your Hard Earned Money from the Taxman
• Seven Ways to Invest Your Money Now for a Tension Free Life Ahead

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