Best Tax Saving Investments in March for FY 2017-18

Income tax saving is a big question which arises for taxpayers in March month as the financial year ends. We have identified some best possible tax saving investment options for taxpayers to consider.

Last date for Income Tax return filling for FY 2016-17 is 31^st March 2018. By this date individuals having gross annual income of more than INR 3 lakhs need to plan the tax saving investments for current FY 2017-18.

While choosing a tax saving investment, a taxpayer has to keep in mind both return and tenure of the investment. Lock-in period or tenure of the investment is important to maintain the cash liquidity for any investor.

Here are the best tax saving Investments which you must definitely consider:

Public Provident Fund (PPF)

Taxfree Return – 7.9% (compounded yearly)

Tenure/Maturity Period – 15 years

Risk – Low

Post Office Department manages PPF investment scheme. This is a long term investment scheme with maturity period of 15 years having partial withdrawal option available after 7^th year. Loan facility is also available from 3^rd financial year onwards.

Taxpayer can invest an amount ranging from INR 500 – INR 150000 in a financial year. The investor can monthly/annually deposit the investment amount as per choice. This investment option is only available to resident taxpayers.

Although the tenure is very long but considering the risk and reward, this tax saving investment is the best option for any taxpayer

Voluntary EPF for Salary Employees (VEPF)

Return – 8.55% (compounded monthly), Taxfree after 5 years of contribution

Tenure/Maturity Period – Limited to your employment tenure

Risk – Low

VEPF option is only available to salaried employees. Any salaried employee who is subscriber of the Employees Provident Fund scheme and holding a valid UAN (Universal Account Number) can request his/her employer to add a voluntary contribution to EPF and deduct the same from the employee’s take home salary.

For example- Basic salary of the employee on which he is paying EPF is INR 25,000 then he/she can request the employer to raise the EPF deduction percentage from 12% to 15% and contribute INR 750 per month extra to the EPF department.

With highest possible return from any government backed scheme, VPF/VEPF is the best option for salaried employees. The invested sum can be withdrawn after leaving the employment or a loan can be obtained with minimum contribution of 3 years.

Even if you are not a subscriber of the scheme but your employer is a registered establishment under the scheme, you can request your employer and become a subscriber to the scheme and take tax benefit on EPF contribution .

Although the tenure is linked with employment but considering the risk and reward, this tax saving investment is the best option for salaried taxpayer.

ELSS/Tax Saving Mutual Funds

Return – Not Guaranteed and Taxable

Tenure/Maturity Period – 3 years lock-in

Risk – High

Tax saving mutual funds are the funds which have exposure of more than 65% in equities market. These funds are categorically marked as tax saver funds or equity linked saving schemes (ELSS) or Systematic investment plan (SIP).

Asset management companies manage Invested money in any such schemes . These funds are exposed to the risk of equity market therefore, there is no guaranteed return on investment.

Return on investment on this option is taxable to the tune of 10% under the Long Term Capital Gains head without indexation. This investment option can have an investment cycle of 3 years, let’s try to explain with an example:

If you invest INR 50,000 in Year 1, you can claim tax benefit of the investment in Year 1 and sell the units in Year 4. With the sale consideration irealized n Year 4, you can reinvest the sum after paying capital gain tax and claim the investment benefit again. Therefore, if you do not incur any losses, you do not have to invest any additional sum from your pocket after Year 3.

Individuals who have higher risk taking appetite must definitely go for the best mutual funds as this option can have highest possible returns along with more liquidity.

Tax Saver FD (Term/Fixed Deposits)

Return – 5-6% taxable

Tenure/Maturity Period – 5 years lock-in

Risk – Low

Tax saver FD is the option to investors who want lesser tenure than PPF or EPF and cannot afford to take risk. This option is good for senior citizens as the interest income on FD is exempt in the hands on investor subject to a limit of Rs. 50,000 from FY 2018-19.

If you want to avoid risk and are contended with lesser return for shorter tenure, FD is a good investment. This is the best option for senior citizens considering taxfree returns and risk profile.

Calculate income tax and start planning your tax saving investments for the FY 2017-18.