“Tax-saving Investment Plans- A Comparative Analysis”

An investor should act prudently,  a rational investor should consider future requirement of fund, tax saving on investment, security, lock in period, after sales service etc. rather than concentrating only on monetary returns. Various investment options are available like investment in real estate, stock market, gold, Term deposits etc.

The trend towards investment in real estate & gold is also increasing because of continuous hike in prices. These investments indeed help taxpayers maximizing their wealth but many of these investments do not come up with tax saving option. It is better to choose an investment which provides benefits like high returns, security along with tax saving.

Following is the summary of some of the popular tax saving investment plans made available to the taxpayers to get them the best of their needs:

Particulars Sukanya Samriddhi Account Public Provident Fund Fixed Deposit with Scheduled Banks or Post Office for 5 years Specified Mutual Funds
Who can avail this scheme? Parent/ guardian having girl child less than 10 years of age at the time of opening the account. Any person Any person Any person
Minimum Investment per year Rs. 1,000 Rs. 500 No limit specified No limit specified.
Maximum Investment per year Rs. 1,50,000 Rs. 1,50,000 No limit specified No limit specified.
Tax exemption on Investment Available upto Rs. 1,50,000/- U/s. 80C Available upto Rs. 1,50,000/- U/s. 80C Available upto Rs. 1,50,000/- U/s. 80C Available upto Rs. 1,50,000/- U/s. 80C
Interest rate p.a./returns It varies year to year. For Financial Year 2015-16 interest rate offered is 9.20% p.a. It varies year to year. For Financial Year 2015-16 interest rate offered is 8.70% p.a. Depends upon period of FD, SBI 5 years FD’s standard rate 7.00% p.a. Returns in the form of net asset value depend upon the position of share market.
Taxation of interest/ dividends from units Exempt from tax Exempt from tax Taxable under ‘Income from other sources’ Dividends and long term capital gains are exempt from tax.
TDS on interest/ dividends Not applicable Not Applicable TDS shall be deducted at 10% U/s. 194A if amount of interest exceeds Rs. 10,000/- during the year. Not Applicable
Lock in period Investor cannot close the account for atleast 14 years from opening of account. Investor cannot close the account for atleast 15 years from opening of account. Investor cannot close the FD until its maturity. 3 years from the date of investment.
Maturity Account matures when beneficiary girl attains her age of 21 years or 14 years from the first investment, whichever comes earlier. Account matures after 15 years from first investment. However, it can be extended for 1 or more blocks of 5 years each. Maturity of FD. There is no maturity for units. Taxpayer may sell the mutual funds units at any time once the lock in period is expired.
Taxation of maturity proceeds Exempt from tax Exempt from tax Only interest portion is taxable and principal amount is not an income. Proceeds in the form of long term capital gains are exempt U/.s.10(38).
Premature withdrawals Investor can withdraw maximum 50% of the available balance for the education of beneficiary girl child. Investor can withdraw maximum 50% of the available balance for meeting his financial needs. Premature withdrawal can be Done. However, 80C deduction claimed will be treated as income and also in some cases, bank charges penalty for such withdrawals. Premature withdrawal can be Done. However, 80C deduction claimed will be treated as Income and Short term capital gain may arise.
Loans against deposit Not allowed. Not allowed. Not allowed. Not allowed.
Additional condition The proceeds from the scheme can only be used for the purpose of education or marriage of the beneficiary girl child.

Conclusion:

Taxpayer may opt for any of the option depending upon which his needs and preferences.

  • Sukanya Samriddhi Account:

If the taxpayer is having a girl child less than the of age 10 years, then this plan is best suitable for him considering the highest interest rate as compared to all other options and tax exemptions. At present, cost of education is very high; the taxpayer can utilize the proceeds received on the maturity for the higher education of his girl child or even for her marriage.

  • Public Provident Fund:

If the taxpayer is having stable incomes during his early stage of life and could save some amount for his retirement every year, then PPF option seems attractive since it offers tax exemption at all stages i.e. investment, interest payment and at maturity.

  • Fixed Deposit:

If the taxpayer doesn’t want to block his funds for a long period of time, he may go for options like Fixed Deposits with bank for 5 years.

  • Specified Mutual Funds:

If the taxpayer is having small savings like Rs. 1,000/- or 2,000/- per month, he may select this option. He will get the tax benefits on investment and also on the dividends received. However, the value of the units is derived from the share market, this option is somehow riskier than the above mentioned options.

Click here to know more about Public Provident Fund (PPF).

Click here to know how to avoid taxes on FDRs.

Summary
Article Name
“Tax-saving Investment Plans- A Comparative Analysis”
Description
An investor should act prudently, a rational investor should consider future requirement of fund, tax saving on investment, security, lock in period, after sales service etc. rather than concentrating only on monetary returns. Various investment options are available like investment in real estate, stock market, gold, Term deposits etc.
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myITreturn
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