Friends,
I had already written a detailed article on tax saving schemes during the last Financial Year and thought of reminding you as the Finance/Payroll folks starts to chase us. Most of the content is valid today also and I have added the content in specific areas to reflect the changes for the current scenario.
- After retaining the popular Public Provident Fund (PPF) Interest rate at 8.7% for quite some years, Government in Feb 2016 decided to Peg the interest rates of all small saving schemes including PPF, SCSS, KVP, Post Office Time deposits , MIS, Suganya Samrithi to the Government Securities or G Sec. yields for the previous 3 months. This rate will be reset every quarter going forward. This has resulted in PPF rates going down to 8.1% in April – June Quarter and Jul-Sep Quarter, FY 2016-17. Subsequently, starting 1st Oct 2016 the rate has been further lowered to 8% and remain the same till Financial Year Closure, i.e. 31 Mar 2017. I have taken PPF as an example since it a popular tax saving option among small savings. The reduction is applicable to the other products too with variations in Interest Rates (SCSS, Suganya Samrithi enjoyed higher rates than PPF earlier and the difference continues)
- Bank Fixed deposit rates has been coming down sharply due to RBI Repo rate cuts and limited credit off-take. This has resulted in the popularity of Tax saving Bank Fixed Deposits going down.
- Since 2014, retail investor participation (via Mutual Funds) has been increasing with the Inflows touching all time highs month on month in CY 2016. The participation of Provident Funds and increasing NPS (National Pension Scheme) flows has resulted in the Domestic Institutional Investors (DIIs), investing huge money to counter the Foreign Institutional and Portfolio Investors. The markets react negatively whenever the FIIs and FPIs pull out, going down, which was a cause of concern. With the flows from DIIs increasing, the stability of the market has been improving
Equity Linked Savings Schemes investing in Equity Markets has the minimum lock in period among all other options in 80C. Typically systematic investments is recommended for Equity but many of us think about submitting the proof of investments only when the company starts chasing us. So, you could still invest on a weekly basis for this financial year and plan to do more systematically from next financial year. Investors who are averse to Equity shoud use this opportunity to take small exposure that you are comfortable with.
India is moving towards an Economy where investments in Real Estate and Gold are not attractive options anymore (like most developed countries). This makes Equity Investment almost a mandatory option unless your wealth is significantly huge that even if it lies in Savings A/c, it will last for 2 generations!!!
$$ Axis Long Term Equity, Birla SL Tax Relief 96, DSP Black Rock Tax Saver, Franklin India Tax Shield, Invesco India Tax Plan and Reliance Tax Saver are some of the funds with a good track record
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