What is your favourite tax-saving instrument?

Parvatha Vardhini C | Updated on January 19, 2018 Published on January 31, 2016

While youngsters swear by the PPF, senior citizens don’t mind taking high risk by investing in equity linked saving schemes, finds out Parvatha Vardhini C

Being safe and sound

Ten years of being a tax payer has taught Uma Maheswari, a software professional based in Chennai, to analyse and choose her tax-saving instrument well. “Ten years ago, when I started working, I used to be threatened by the long 15-year lock-in for the PPF. Hence I used to invest only a minimal amount here. But soon, I realised that the tax breaks at all three levels — on first investment, the interest and on the maturity amount — is something that I will not get in fixed deposits. Plus, the fact that you keep on earning interest on the interest of the earlier years also makes it attractive,” she says.

Every year, Uma plans her finances in such a way that she invests the entire tax deduction amount eligible under 80C (₹1.5 lakh this year) in PPF in April itself, so that she can earn interest on it for the full year. “This is despite the fact that I can put in much lower as I can also claim my Employee Provident Fund amount, insurance premium on my Jeevan Anand policy from LIC and my housing loan principal payment under 80C.”

Uma has medical cover provided by her employer for which the company automatically deducts premium from her salary. So to further save on taxes, she claims this expense under section 80D, which provides tax deduction for payment of premium on health insurance policies. Besides, she is also a generous giver and claims section 80G deductions available for donations made, wherever possible. This section gives either a 100 or 50 per cent deduction from taxes for donations made to approved funds/ institutions.

But she is reluctant to invest in the NPS, although it fetches an additional tax deduction of ₹50,000 this year. Being in her early thirties, she feels she can wait a little bit more before she begins saving for retirement. “Currently, I focus on short to medium-term savings for smaller goals such as buying a bit of gold for my daughters or furnishing my house,” she says. She saves for these by investing in the equity markets, guided by her father. Here too, she tries to work tax efficiently, waiting for the end of a one-year period after the investment before booking profits. Since she is not very ambitious on returns, this approach suits her well as it helps her to save on long-term capital gains tax.

More deduction welcome

“Too many options, but too little deduction” is what people like Kuldeep Singh from Bengaluru feel. Kuldeep, an alumni of IIM Bangalore, who has worked for several years across tech companies, says that although he finds quite a few of the tax-saving investment options attractive, his Employee Provident Fund contribution itself takes care of the entire ₹1.5 lakh. “Since I have a daughter, I feel the Sukanya Samriddhi Scheme is a good avenue to save for her future. Hence I am planning to invest in it even though I won’t get the tax break,” he says. But he is quite happy about the room for additional deduction of ₹50,000 for NPS investments. Although he believes that mutual funds are a good way to save for long-term goals and is investing in some of them, thanks to the additional deduction, he is planning to open an NPS account this year to add to his savings for his silver years.

Kuldeep is quite savvy about medical insurance and has taken a cover for his family. He uses Sec 80D deduction available for premium payments on such policies to reduce his tax burden. Having found that his older policy was inflexible on some features such as offering cashless facility, he has upgraded to a new policy.

High risk, high returns

Wouldn’t one think a senior citizen would be more worried about the safety of his investment than about earning high returns? Meet K Srinivasan, a 68-year old retired Head of Department of Physics at a college in Tiruchirapalli, who doesn’t believe in this theory. To this pensioner, returns do matter. Having a reasonably good pension income and investments in other fixed deposits, he isn’t keen on regular payouts from tax-saving investments. So he feels the Senior Citizens Savings scheme, designed to provide 80C benefits as well as quarterly payouts, doesn’t suit him. Given his penchant for high returns and willingness to take risks, he chooses tax-saving mutual funds.

“I am a veteran stock market investor and I have always made good money in equities. Hence, I prefer investing in Equity Linked Savings Schemes,” he says. Srinivasan did spread his tax-saving investments between the PPF and ELSS schemes earlier. But he has stuck to investing only in ELSS schemes in recent times.

He is not a last-minute investor. “I carefully plan out my investments so that I start the SIPs (Systematic Investment Plan) on one or more tax-saving mutual funds right at the beginning of the financial year in April itself”, he says. At his age, he is not deterred by the fact that every SIP in a tax-saving fund has a lock-in of three years and will face the vagaries of the market too. Having made double -digit returns on his ELSS investments in the past, he is confident that if one chooses good funds, it will always pay off.

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