7th Pay Commission payout soon; best tax-saving investment options for you

The 7th Pay Commission payout is all set to begin with central government employees to get higher salaries and arrear payments soon with the Union Cabinet giving a go-ahead to the panel’s recommendations.

If you are a central government employee, the increased pay packet will come with its own set of concerns on managing the money. While there will be a portion for expenditure that has been pending, you need to have a definite plan of setting aside a decent amount as long-term savings and invest it in appropriate instruments. One portion of investment would be for tax-saving purposes.

You will have nearly eight months till March 31, 2017 to make your investment for tax-saving purposes but it is always good to start investing early. So, what are the options before you and what should you look for while investing for saving tax?

“There are a large variety of tax-saving options available under Section 80C of the Income-Tax Act. However, the key issues are the safety, returns and tax status while investing. You also have to consider the periodic returns and at the time of maturity or redemption,” Sanjeev Govila, CEO, Hum Fauji Initiative, told FeMoney.

Govila suggests Public Provident Fund (PPF) figures among the top of the list. “PPF is the best tax- saving avenue for the risk averse as it gives decent interest of 8.1 per cent as on date and enjoys the E-E-E (Exempt ExemptExempt) status. If someone finds the returns low and are prepared to accept some volatility of returns, tax saving mutual funds (called ELSS – Equity Linked Savings Scheme) are very good. They also have E-E-E status. If chosen carefully ELSS are likely to provide higher returns than PPF,” Govila said.

Though ELSS have the shortest lock-in period of all tax-saving investments of just three years, you can continue investing for as long as you want. Also contributions can be made regularly through automatic ECS from bank account. Govila, however, warns that ELSS returns are market linked.

“Apart from these, five year tax-saving bank FDs, insurance policies and NSC also are 80C investments. But low returns take their sheen off. NSC are E-E-E provided the interest received is shown re-invested in the I-T Returns each year (except the last year when it matures) and bank FDs are in the E-T-T bracket,” says Govila.

FeMoney spoke to leading personal finance advisor, Anil Rego, CEO and Founder, Rights Horizons to bring to you snapshot of the most-favoured tax-savings options under Section 80C as a ready reckoner.

Equity-linked Savings Scheme – Has lock-in of 3 years; can be invested up to be a maximum of Rs.1.5 lakhs under 80C and others: 

• Public Provident Fund – Has lock-in of 7 years, investments are eligible for tax exemption u/s 80C 
• Sukanya Samridhi Scheme (If the investor has a girl child)- Investments can be withdrawn only after girl turns 21 or 50 per cent of the corpus when girl turns 18 or gets married 
• National savings certificates – NSC-VIII has a lock in period for 5 years and NSC-IX has lock in for 10 years. There is no maximum limit of investment in NSC, but you can claim a tax deduction for Rs 1.5 lakhs under section 80C 
• Tax free bonds – These bonds are not eligible for deduction under section 80C. It means that the interest earned on tax-free bonds is exempted from taxation. However, the bonds are subject to capital gains tax. Usually these bonds have a lock in period of 5 years 
• Insurance policies – Though these can be used for tax savings under Section 80C, Rego advises that the principal aim of insurance should be to cover life risk rather than as an investment instrument.