In the financial year 2018-2019, Budget finance minister Arun Jaitely has proposed to levy 10% tax on the Long-Term Capital Gains made above ₹1 lakh a year from equity mutual funds . This could change the way people invest their savings.Now the options of investing into tax free equity is lowered to people available with income after tax. Now some schemes are left where tax is exempted on maturity on investments upto 1.5 lakh, as per Section 80C. 1.Sukanya Samriddhi Yojana 2. Public Provident Fund 3.ULIP 4. ELSS
1. Sukanya Samriddhi Yojana
This scheme has been launched for girls under 10 years of age,where parents can open the account in the name of their girls (maximum 2 accounts for both) .It is compulsion to invest minimun of rs 1000 yearly or maximum rs.150000.The account will be closed after 18 years.and the account holder girl can withdraw the money only after her marriage.It facilitate a compound interest of 8.3% annually.
2. Public Provident Fund
Under this scheme, one can invest from rs.500 to 150000 in a financial year. Can be invested in monthly installments or yearly. Account can be opened using cash or cheque. It gets matured after a span of 15 years. The interest earned is totally tax exempted.It is on compound interest @7.9% p.a.
3. ULIP (Unit Linked Insurance Plan)
Unit Linked Insurance Plan is a product offered by insurance companies which gives investor both insurance and investment under one plan. During the payment of premium for insurance, cost of insurance is kept aside and the remainder is being invested. The long term gain earned on it is tax free.
4. ELSS (Equity Linked Saving Schemes)
It is a mutual fund that invest a greater proportion of its corpus in equity market. There is no maximum limit of investment. ELSS is specially created to give taxpayers the dual benefit of saving taxes under Sec 80C with the lowest lock-in period. It gives the lowest lock in period of 3 years with 2 times higher interest rates returns i.e. 15% to 18%, than provident fund. ELSS gives the tax free returns and let investors to invest monthly with minimun of 1000 p.m.
5. Best choice to be made
After the announcement of tax on LTCG the insurance companies are making efforts in tax free returns from insurance policies and ULIPS . In the words of Abhinav Angiridh, MD, Investment Advisor, "We recommend investments should be made into that give taxable returns.but perform better than the tax free products with low returns.Mutual funds should be the first choice." If one wants to save tax under sec 80C a combination of ELSS and PPF is best choice.