Employees’ provident fund for retirement planning
The basic purpose of this is to build up a corpus for retirement. There is a statutory deduction of 12 per cent from an employee’s salary. An employee can contribute more than 12 per cent of the salary. An employer too is bound to contribute 12 per cent of an employee’s salary. The interest rate is declared every year. At present, the interest rate is 8.5 per cent. Both the contribution and the interest earned are exempt under the Income Tax Act. So, this is the best tool for retirement planning.

Public provident fund a saving tool who offers more interest

Those who are not covered by EPF can contribute to PPF. Even those covered by EPF can, in addition, contribute to PPF. This is a self-driven retirement planning tool. PPF earns interest of 8 per cent. The interest earned is exempt from tax. The term of a PPF account is 15 years and, thereafter, it can be renewed for a period of 5 years after every maturity.

Life insurance mandatory for your family’s future

Life insurance is a must in everybody’s portfolio. The premium paid towards a life insurance contract – whether term insurance, endowment insurance or ULIP (unit-linked insurance plan) – is eligible for deduction under 80C. The only condition is that the premium amount should not exceed 20 per cent of the sum assured.

Pension plans for Saving income tax

These pension plans are actually covered under Sec. 80CCC, but they come under the overall limit of Rs 1 lakh under 80C. These plans are best suited for those who are not covered by EPS (Employees’ Pension Scheme) or any other such schemes, and is a good retirement planning tool. There are various options for investment under such plans, suited for every risk profile. One has to contribute a minimum Rs 10,000; there is no limit for maximum investment.

Home loans

Nowadays, most people opt for housing loans to fulfil their aspirations of owning dream homes. The government has introduced tax breaks to boost the housing sector. Interest on housing loans up to Rs 1.5 lakh is tax-deductible under loss from house property. The principal amount up to Rs 100,000 is now covered under Section 80C. This is a very good alternative for home buyers. If we take into account the tax breaks, then the effective interest rate on a housing loan will come down at least by 1 percentage point.

National savings certificate (NSC)

This is one of the small savings schemes. Its tenure is 6 years and the interest rate is 8 per cent, compounded half-yearly. So, Rs 1,000 invested today will become Rs 1,601 after 8 years. But, one should note here that the interest is taxable, either on due basis or accrued basis. Interest is taxed under the head of ‘income from other sources’. This is a safe investment, as it is backed by government security and best suited for risk-averse investors. The only thing is that you have to lock in money for 6 years.
Fixed Deposit in Banks

The government has covered bank FDs for deduction under 80C. The only condition is that it should be with a scheduled bank and for a minimum period of 5 years. This is a very good alternative for a risk-averse investsor. But interest earned on an FD is chargeable to tax under the head of ‘income from other sources’. At present banks offer around 7.5 per cent interest for term deposits of 5 years and above. There is no upper limit for the amount to be invested.

Categories: Income Tax Saving Tips, Save Income Tax, Save Tax Through Investments
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