Best Ways to Save Tax

Find out which is the best instrument to save tax under Section 80C this year.

Budget 2014 gave taxpayers plenty to smile about. For instance, the hike in deduction limit under Section 80C meant that those who saved more could reduce their tax by up to `15,000. While a higher limit can clearly be a boon for taxpayers, it may not be of much use if you don't know which tax-saving option suits you best. If you too are confused by the wide range of options under Section 80C, our cover story can help you. We have considered nine of the most common tax-saving instruments and ranked them according to their score on six parameters. All the options were graded on the basis of returns, safety, liquidity, flexibility, taxability of income, and cost of investment. Then they were ranked according to their composite scores.

Not unsurprisingly, the equity linked saving schemes (ELSS) or tax planning mutual funds hold the pole position this year, followed by Ulips. The PPF, which was ranked number one last year, has slipped to the third position, not because of any change in its features, but because products such as ELSS and Ulips hold greater promise in the current market conditions.

Not much has changed for traditional insurance policies as well as pension plans from insurance companies. They continue to be the worst ways to save tax. Even so, the tax planning season is a hectic time for agents, who sell low yield insurance policies and high-cost pension plans to gullible investors. We hope our story will help the taxpayers make more informed decisions and optimise their savings this year.