How, when and where to invest is really a tough decision for the taxpayers? Considering the income tax strategy in India, it is really a tough decision to make. But, in case anything wrong happens in this regard then one has to repent for the same for longer time. Understanding of income tax strategy in India is necessary because this can only help in making the best investment for income tax savings. When investors look for the ‘best’ investment option, they want something that will earn them the maximum return with the least amount of risk. However, such an investment product does not really exist. This is because every investment has some risk attached to it, high or low.
One should not invest in something just to generate high returns because such products come with commensurate risk, and a higher chance of you losing the money that you have invested. Below are the investments that you can make to save your precious money.
Public Provident Fund
The Public Provident Fund (PPF) is one of the most popular investment options in India because of its sovereign guarantee. Some of its features are:
- Investment offers tax benefit under section 80C, interest earned and maturity are also exempt from tax.
- The scheme has a lock-in period of 15 years.
- Post maturity, the account can be extended in block of five years for any number of times.
- The interest rate is reviewed by the Government every quarter. Currently, for the April-June 2018 quarter, interest rate offered is 7.6 percent a year.
Bank Fixed Deposits
Bank fixed deposits (FDs) is another popular investment option which offers fixed returns. One can invest in a bank FD by visiting his/her branch or via Net-banking. Here are some of its key features:
- FDs are available in a wide range of tenures. Banks like the State Bank of India (SBI) and HDFC Bank offer FDs with minimum tenure of 7 days and maximum of up to 10 years. One can invest in any tenure depending on his/her time horizon at the rates offered by banks.
- Most bank FDs offer the option of premature withdrawal by paying a penalty. However, this should be checked at the time of opening the FD account.
- A bank FD is insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC) rules only up to Rs 1 lakh (principal plus interest) is insured per person per bank.
- Currently, SBI is offering interest rate between 6.40 percent and 6.75 percent for FD tenures of 1 year to up to 10 years. Senior citizens get an extra 0.50 percent.
Mutual Fund Debt Fixed Maturity Plans
Fixed maturity plans (FMPs) are close-ended debt funds offered by mutual funds. The maturity date of FMPs is fixed. Features of FMPs are:
- These plans invest in various types of fixed income options such as bonds, bank certificate of deposits etc. which mature on or before the maturity date.
- Unlike a bank FD where returns are fixed, FMP returns are not fixed or guaranteed.
- FMPs have a tax advantage over bank FDs. Capital gains on debt FMPs, held for more than 36 months, qualify for long-term capital gains (LTCG) taxation. It is taxed at 20 percent post-indexation benefit. Also, if you have incurred long-term capital losses, you can set off the loss against the LTCG before calculating tax payable.
Debt Mutual Funds
Apart from FMPs, which are close-ended debt funds, mutual funds also offer open-ended debt funds. These open-ended funds are considered less volatile than equity thereby offering stable returns as compared to equities.
- They also invest in various debt instruments such as corporate bonds, treasury bills, government securities etc. These schemes are professionally managed by debt fund managers.
- There are different types of debt mutual funds such as liquid funds/money-market funds, short-term income funds, gilt funds, corporate bond funds etc. c) These funds invest in various instruments of different time horizons and carrying different levels of risk. An investor can invest in these funds depending on his/her time horizon and risk appetite.
These are the best tax saving options of investment in India. You can go with the same and save your money. Well, consulting a reputed tax service company in India will also help you in the concern.