In tax season, a la carte of Section 80C

ELSS
Equity Linked Savings Scheme is offered by equity mutual funds.

• How to invest: Register online with an aggregator, or visit the branch with documents.
• Returns: Linked to the stock market. Top funds have returned 12-18 per cent in last three years.
• Risks: Moderate to high as you are investing in the stock market.
• Liquidity: Fully redeemable after three years.
• Tax efficiency: Tax-free on redemption.
• Our Rating: 5/5 – lowest lock-in period, possibility of high returns, and highest tax efficiency. Invest via SIP for best results.

PROPERTY WITH HOME LOAN
With a home loan, you can avail very large tax deductions. Under Section 80C, you can claim deductions for principal payments (via EMI or pre-payment), stamp duty and registration up to RS 1.5 lakh. Additionally, you can also claim up to Rs 2 lakh under Section 24B for loan interest for a self-occupied house, or without limit for a rented house.

• How to borrow: Register online or visit the branch with documents.
• Returns: Will be on your property, linked to the property market.
• Risks: Low to moderate depending on the property.
• Liquidity: A property is not a liquid asset.
• Tax efficiency: Hold the property for five years. Otherwise the tax savings need to be repaid after sale. You can claim indexation benefits to reduce tax incidence on sale after 24 months of ownership.
• Our rating: 5/5 – A home loan is one of the best ways to save income tax due to the sheer volume of tax it can save, along with helping you buy an appreciating asset.

TERM INSURANCE
A term plan is a must for any person with dependents. It allows you buy a sizeable cover at low costs.

• How to invest: Compare and buy online, or visit a branch.
• Liquidity, Risks, Liquidity: Not applicable as this isn’t an investment.
• Our Rating: 5/5 – An essential financial tool. You can claim up to Rs 1.5 lakh as deductions for premiums paid towards one or many life insurance policies.

PUBLIC PROVIDENT FUND
The PPF is the best long-term investment and tax-saver for the conservative investor.

• How to invest: Register via your participant bank.
• Returns:  Currently, 7.6 per cent per annum compounded annually.
• Risks: None. Your investment is guaranteed by the Central Government.
• Liquidity: Poor. Partially redeemable from the seventh year; full withdrawal after 15 years.
• Tax Efficiency: Best-in-class. PPF enjoys the triple-exempt status, meaning your entire investment is completely tax-free.
• Our rating: 4/5 –Best debt investment option, tax-free returns. Liquidity is a problem.

FIVE-YEAR FIXED DEPOSIT
You can avail a five-year tax-saver fixed deposit for tax deductions up to Rs. 1.5 lakh.

• How to invest: Via your bank (offline or online) or post office.
• Returns: Currently around 6-7% before tax.
• Risks: None.
• Liquidity: None as there is a five-year lock-in.
• Tax efficiency: Low, as your returns are taxable as per your slab.
• Our Rating: 3/5 – Good option if you’re looking for a quick, safe tax-saver with low returns.

EPF
The Employee Provident Fund pays a handsome 8.65% today – a great option for conservative investors looking for safe returns.

• How To Invest: You can increase your employee’s contribution as per investing capacity.
• Returns: Currently, 8.65%.
• Risks: None to low. A small part of your investment may be exposed to equity.
• Liquidity: Investment can be redeemed subject to terms and conditions.
• Tax Efficiency: Investments can be withdrawn tax-free after five years.
• Our Rating: 4/5 – if you’re a safe player, you can increase your own contribution and earn assured returns for the long term.

NATIONAL PENSION SCHEME
This allows you to save on tax beyond 80C as well as creating income for retirement. You can claim Rs 1.5 lakh as deductions under 80C, and an additional Rs 50,000 under 80CCD(1B).

• How To Invest: Register online via NSDL.
• Returns:  Five-year returns have varied between 9.3% and 12%.
• Risks: NPS offers both debt and equity investment options.
• Liquidity: Not a liquid investment. After 10 years of investing, NPS allow 25% premature withdrawals.
• Tax Efficiency: Not very tax-efficient. Only 40% of the invested corpus is tax-free on redemption.
• Our Rating: 3/5 – Good option for extra tax savings. However, redemption limits and liquidity are a hassle.

The writer is CEO, BankBazaar.com