9 best ways to save tax

We have ranked nine of the most common investments under Section 80C on five basic parameters: returns, safety, flexibility, liquidity and taxability.

1. Public Provident Fund

Our Rating: 5/5 stars (Excellent) Returns: 8.7% (for 2013 1!) "#e $$% is our to& c#oice as a tax sa'er in 201!. (t scores )ell on al*ost all &ara*eters. "#is s*all sa'ing sc#e*e #as al)a+s ,een a fa'orite tax sa'ing tool- ,ut t#e lin.ing of its interest rate to t#e ,on/ +iel/ in t#e secon/ar+ *ar.et #as *a/e it e'en ,etter. "#is ensures t#at t#e $$% returns are in line )it# t#e &re'ailing *ar.et rates. "#e $$% is es&eciall+ useful for ris.a'erse in'estors- self e*&lo+e/ &rofessionals an/ t#ose not co'ere/ ,+ t#e E*&lo+ees $ro'i/ent %un/ an/ ot#er retiral ,enefits.

2. Equity-linked saving schemes E!""# Funds

Our Rating: 5/5 stars (Excellent) Returns: 17.5% ($ast fi'e +ears) E0uit+ lin.e/ sa'ing sc#e*es (E122) #a'e t#e s#ortest loc. in &erio/ of t#ree +ears a*ong all t#e tax sa'ing o&tions un/er 2ection 803. 4o)e'er- t#is s#oul/ not ,e t#e *ost i*&ortant reason for in'esting in t#is a'enue. 5eing e0uit+ fun/s- t#ese sc#e*es can generate goo/ returns for in'estors o'er t#e long ter*. (n t#e &ast fi'e +ears- t#is categor+ #as create/ )ealt# for in'estors )it# a'erage returns of 17.5% 5efore +ou ta.e t#e &lunge- re*e*,er t#at +our in'est*ent s#oul/ ,e gui/e/ ,+ +our o'erall asset allocation. (f +our ex&osure to e0uities is lo)er t#an )#at +ou )ant- go for t#e E122 fun/. (f +our &ortfolio alrea/+ #as too *uc# e0uit+- a'oi/ in'esting in t#ese fun/s.

$. %nit !inked &nsurance Plan %!&Ps#

Our Rating: !/5 stars (6oo/) Returns: 7.2 11.8% ($ast fi'e +ears) "#ere7s a goo/ reason )#+ t#is *ost #ate/ in'est*ent is so #ig# on our rating scale. %or *an+ &olic+#ol/ers- 8li&s /enote t#e costl+ *ista.e t#e+ *a/e a fe) +ears ago. 5ut t#at )as a /ifferent era- )#en co*&anies )ere go,,ling u& 50 90% of t#e &re*iu* in t#e first fe) +ears in t#e guise of c#arges. "#e 2010 gui/elines #a'e refor*e/ t#e 8li&- turning it into a *ore custo*er frien/l+ in'est*ent.

"#oug# a 8li& s#oul/ not ,e +our first insurance &olic+- +ou can consi/er ,u+ing one as an in'est*ent t#at also #el&s +ou sa'e tax. :on7t ,u+ a 8li& (or an+ ot#er insurance &olic+- for t#at *atter) if +ou are not sure )#et#er +ou can continue &a+ing t#e &re*iu* for t#e entire ter*. (f +ou en/ it &re*aturel+- ,e rea/+ to &a+ surren/er c#arges. (t is ,est to in'est in a &lain 'anilla 8li& t#at allo)s +ou to c#oose +our in'est*ent *ix an/ also offers online transaction facilities.

'. (oluntary PF
Our Rating: !/5 stars (6oo/) Returns: 8.5% (for 2013 1!) "#e contri,ution to t#e E*&lo+ees7 $ro'i/ent %un/ (E$%) is a co*&ulsor+ /e/uction- as also an auto*atic tax sa'er. 4o)e'er- +ou can contri,ute *ore t#an 12% of +our ,asic salar+ t#at flo)s into t#e E$% e'er+ *ont#. "#is 'oluntar+ contri,ution )ill earn t#e sa*e rate of interest- )ill fetc# +ou t#e sa*e tax ,enefits un/er 2ection 803 an/ t#e *aturit+ cor&us )ill also ,e tax free. ; .e+ /isa/'antage is t#e li*ite/ li0ui/it+ t#at t#e $ro'i/ent %un/ offers. <ou cannot access t#e *one+ till +ou retire. ; one ti*e )it#/ra)al is allo)e/ in s&ecial circu*stances- suc# as *e/ical e*ergenc+- &urc#ase or construction of a #ouse- or a c#il/7s *arriage.

). "enior *iti+en,s "aving "cheme

Our Rating: !/5 stars (6oo/) Returns: =.2% (for 2013 1!) >it# four stars- t#is assure/ return sc#e*e is t#e ,est tax sa'ing a'enue for senior citi?ens. 4o)e'er- t#e Rs 15 la.# in'est*ent li*it so*e)#at curtails its utilit+ as a tax sa'ing o&tion. "#e interest rate is 100 ,asis &oints a,o'e t#e 5 +ear go'ern*ent ,on/ +iel/. 8nli.e t#e $$%- t#e c#ange in interest rate /oes not affect t#e existing in'est*ents. "#is +ear- t#e interest rate #as ,een cut ,+ a *arginal 10 ,asis &oints to =.2%. ;lt#oug# t#e sc#e*e is for senior citi?ens (90 +ears)- e'en t#ose a,o'e 55 +ears can in'est if t#e+ #a'e ta.en 'oluntar+ retire*ent. Retire/ /efence &ersonnel can @oin irres&ecti'e of t#eir age if t#e+ fulfil ot#er con/itions

-. .ew Pension "cheme

Our Rating: !/5 stars (6oo/) Returns: !.2 10.2% (&ast 3 +ears) (ts lo) cost structure- flexi,ilit+ an/ ot#er in'estor frien/l+ features *a.e t#e Ae) $ension 2c#e*e an i/eal in'est*ent 'e#icle for retire*ent &lanning. 4o)e'er- e'en t#oug# t#e fun/ *anage*ent c#arges #a'e ,een raise/ fro* t#e ri/iculousl+ un'ia,le 0.000=% to a *ore reasona,le 0.25%- t#e &ension fun/ *anagers are not #ar/selling t#e sc#e*e. (f +ou )ant to sa'e tax t#roug# t#e A$2 t#is +ear- ,e rea/+ to /o a lot of leg)or. an/ &a&er)or. ,efore +ou can get to in'est in t#is uni0ue &ension &lan. "#e )art in t#e A$2 is t#e lac. of li0ui/it+. <ou cannot access t#e fun/s ,efore +ou turn 90. On *aturit+- at least !0% of t#e cor&us *ust ,e use/ to ,u+ an annuit+. 2o*e see t#is as a &ositi'e feature t#at &re'ents &re*ature )it#/ra)als.

/. .ational "avings *erti0icates ."*s# and 1ank F2s

Our Rating: 3/5 stars (%airl+ 6oo/) Returns: 8.5 =.75% "#ere are *an+ *isconce&tions a,out ,an. fixe/ /e&osits in t#e *in/s of in'estors. Ban+ t#in. t#at u& to Rs 10-000 interest fro* ,an. /e&osits is tax free- as announce/ in t#e ,u/get t)o +ears ago. "#is is not true. "#e ne)l+ intro/uce/ 2ection 80""; gi'es a /e/uction of u& to Rs 10-000 on interest earne/ in t#e sa'ings ,an. account- not on fixe/ /e&osits an/ recurring /e&osits. ;lso- t#e no*enclature 7tax sa'ing /e&osits7 *eans +ou sa'e tax un/er 2ection 803. (t /oes not *ean t#at t#ese /e&osits are tax free. "#e interest earne/ on /e&osits is full+ taxa,le at t#e nor*al tax rate a&&lica,le to +ou. <ou #a'e to *ention t#is interest un/er t#e #ea/ 7(nco*e fro* ot#er sources7 in +our inco*e tax return. Cee& in *in/ t#at t#is tax is &a+a,le e'er+ +ear on t#e interest t#at accrues in t#at financial +eare'en t#oug# +ou get t#e a*ount on *aturit+. 2o /on7t get *isle/ ,+ t#e #ig# interest rates offere/ on t#e 5 +ear ,an. fixe/ /e&osits.

3. !i0e &nsurance Policies

Our Rating: 2/5 stars (Aot 6oo/) Returns: 5.5 7.5% "#oug# t#e (r/a gui/elines for tra/itional &lans #a'e *a/e insurance &olicies *ore custo*er frien/l+ ,+ ensuring a #ig#er surren/er 'alue an/ larger life co'ers- t#e+ are still t#e )orst )a+ to sa'e tax. "#e tax sa'ing is onl+ *eant to re/uce t#e cost of insurance. (t is not t#e core

o,@ecti'e of t#e &olic+. Bone+ ,ac. an/ en/o)*ent insurance &olicies score lo) on t#e flexi,ilit+ scale. Once +ou ,u+ a &olic+- +ou are su&&ose/ to .ee& &a+ing t#e &re*iu* for t#e rest of t#e ter*. "#is can ,e a &ro,le* if +ou too. t#e &olic+ onl+ to sa'e tax. 4o)e'er- tra/itional insurance &olicies still *a.e a lot of sense for t#e 4A( in'estor )#o is *ore concerne/ a,out t#e tax free cor&us un/er 2ection 10(10/) t#an t#e /e/uction un/er 2ection 803.

9. Pension Plans
Our Rating: 2/5 stars (Aot 6oo/) Returns: 7 10% $ension &lans offere/ ,+ life insurance co*&anies *a/e a co*e,ac. in 2013. 4o)e'er- t#e c#arges of t#ese &lans are significantl+ #ig#er t#an t#ose of t#e A$2. >#ile t#e A$2 #as a fun/ *anage*ent c#arge of 0.25%- a t+&ical &ension &lan fro* a life insurance co*&an+ c#arges al*ost 3 !%. "#is /ifference can sno),all into a )i/e ga& o'er t#e long ter*- re/ucing t#e returns of t#e &ension &lan in'estor ,+ a significant *argin. ; fe) *utual fun/s also #a'e &ension &lans. "#e "e*&leton (n/ia $ension $lan is one of t#e ol/est sc#e*es in t#e *ar.et an/ offers /e/uction un/er 2ection 803. (t is a /e,t oriente/ fun/ t#at in'ests 30 !0% of its cor&us in e0uities an/ t#e rest in /e,t. 5ut at 10.7%- its 5 +ear annuali?e/ returns are not#ing to gloat a,out.