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Section 80C 11 Tax Saving Schemes -Which one you like?


Did you know that there are several other-non-insurance-products that can get the same tax benefit that an insurance policy does? Even within insurance, there are plans that get tax deduction and work better as a life cover. But these remain the financial world's best kept secrets.
Here's a run down of products that get you the Rs1 lakh deduction. In some cases, you don't even need a further outflow of money to get this tax break, you can claim it on existing investments. We've split the products according to the risk-return attributes and spending.
A-Zero-risk products
These carry either a government guarantee or have a fixed interest payout. The first two products should form the core of your 80C investments. And if you exhaust the entire limit in this, no need to buy more.

80 c income tax saving schemes 
1. Employees' Provident Fund (EPF): The first scheme that you get to buy the minute you begin work as an employee. Under this, 12% of your basic (including dearness allowance and retaining allowance, if any) goes to this fund and your employer matches this by 12% of his contribution. From your employer's contribution, 8.33% goes towards the Employees' Pension Scheme (EPS) and 3.67% to EPF. Your EPF earns a tax-free interest that is currently 8.5% a year. It's not a good idea to reduce your PF contribution, as some employers may suggest, since you get an investment option that is one of the best in India in terms of risk- and tax-free return.
Return 8.5%(9.5% in 2010-11)
Duration working life
Safety zero risk

2 . Public Provident Fund (PPF): An 8% 15-year cumulative recurring deposit that is fairly illiquid and is good to use as a long-term corpus building tool. Risk- and tax-free today, maximize your contribution to Rs70,000 this year, irrespective of whether you need the tax break or not. The new direct tax code rules will apply from next year and we don't know the exact treatment of old accounts today. Rs70,000 a year for 15 years at 8% will give you Rs19 lakh. Tax free.
Return 8%
Duration 15 years
Safety zero risk
3. National Savings Certificate (NSC): Through this, Rs1 lakh grows to Rs1.6 lakh in six years. The interest generated each half year is treated as "reinvested" and becomes part of your overall 80C contributions. But if you have exhausted the cover, you need to pay tax on the interest.
Return 8%
Duration 6 yrs
Safety zero risk
4. Fixed deposits for a duration of five years with banks and post offices: One of the bug bears senior citizens had with section 80C was that it leaned towards the younger generation by giving tax breaks for long-term corpus building products or on home loans. There was nothing that allowed a retired person to earn an income and yet get a tax break. The extension of specific five-year bank and post office deposits to come under section 80C fills this gap. The current rate of interest is between 5.70% and 8.25% a year.
Return 5.70-8.25%
Duration 5 years
Safety zero risk
5 . Senior Citizens Savings Scheme (SCSS): It allows a retired person having a lump sum to invest it at a reasonably good interest rate. If you are 60 years old (or took voluntary retirement at 55), you can put up to Rs15 lakh for five years in this scheme, earn 9% interest a year and get the 80C benefit on Rs1 lakh. Interest, however, is taxable.
Return 9%
Duration 5 years
Safety zero risk
B-Market-linked Products
6 . Equity-linked savings schemes (ELSS): These are diversified equity mutual funds that allow investors with risk-taking ability to target a higher return. You are locked into the investment for three years, but the long-term capital gains are zero tax.
You can choose a lump sum investment route or a systematic investment plan. The average return in an ELSS scheme over the last three years was 8% and over the last five years was 22%. Or Rs1 lakh invested five years ago will be worth Rs2.7 lakh today .
Return market-linked
Duration 3-year lock-in
Safety market and fund
Manager risk
7 . Unit-linked insurance plans (Ulips): A hybrid product that includes an insurance cover on your life along with a market-linked investment plan. The premium needs to be paid for a minimum of five years. Ulips work only in the long run of over 9-10 years. Given the non-transparency and non-portability of the product in its current state and sustained mis-selling in the industry, we do not recommend that you use this vehicle for your 80C tax break. Look out for more details on Ulips and other insurance plans on Wednesday.
Return market-linked
Duration 5-year lock-in
Safety market and fund manager risk
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Section 80C 11 Tax Saving Schemes -Which one you like? Reviewed by RAJA BABU on 1/06/2011 Rating: 5 Did you know that there are several other-non-insurance-products that can get the same tax benefit ...

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