Investment Advisory

Investment Opportunities For Salaried Employees – Income Tax Perspective:

1. PPF For Long-Term Financial Goal :
Public Provident Fund (PPF) is one of the safest investment options, but at the same time, it comes with a lock-in period of 15 years. Putting money in PPF can help the salaried individuals to ensure that they can’t use that fund for short-term needs. PPF investment can be useful to meet the long-term requirements such as buying a home, etc. The present interest rate on PPF is around 8.00% which is a tax-free return. PPF also helps the salaried individual to reduce the tax liability by getting a deduction U/s 80C.

2. Invest in Gold Bonds :
Instead of buying physical gold, a salaried person should accumulate the gold by investing money in Sovereign Gold Bond (SGB) in a regular interval and get the benefit of interest income at 2.5% p.a. and also get the capital appreciation benefit in the long term. The redemption of SGB investment on completion of tenure is tax-free. So, by investing in SGB, a salaried person gets benefits like capital appreciation, interest income and tax benefit on redemption.

3. Section 80CCC – Deduction for Premium Paid for Annuity Plan of LIC or another Insurer :
This section provides a deduction to an individual for any amount paid or deposited in any annuity plan of LIC or any other insurer. The plan must be for receiving a pension from a fund referred to in Section 10(23AAB). Pension received from the annuity or amount received upon surrender of the annuity, including interest or bonus accrued on the annuity, is taxable in the year of receipt.

4. Section 80CCD – Deduction for Contribution to Pension Account :
Employee’s contribution – Section 80CCD (1) is allowed to an individual who makes deposits to his/her pension account. Maximum deduction allowed is 10% of salary (in case the taxpayer is an employee) or 20% of gross total income (in case the taxpayer being self-employed).However such deduction shall be limited to Rs 1,50,000 as per section 80CCE.

5. Systematic Investment in Equity Oriented Product
A salaried employee can consider investing in an equity-oriented product. Within equity class, the investment should be done in a systematic way, i.e. instead of putting the money once in a year or so, it should be invested in instalments every month. Alternative would be to invest in the Mutual Fund SIP if you think direct investment in the stock market is not preferred. Within equity mutual fund scheme, portfolio should be diversified as per risk and return expectation and in sync with the financial goal. Also, Long term gains from sale of such Equity oriented units are taxed at a reduced rate of 10%.
For example, for medium-term investments, a large-cap equity fund can be selected for getting a high return at moderate to high risk. And similarly, for the long term, you can invest in a mid-cap fund for high risk and high return option. Equity investment through SIP mode reduces the risk in the long term and if we have diversified the investment, then it further curtails the volatility risk.

6. Section 80CCG – Rajiv Gandhi Equity Saving Scheme (RGESS) :
Starting from 1st April 2017 the scheme is being phased out. This is because a very limited number of assessees avail this deduction.
Due to this phasing out, a new investor in Financial Year 2017-18 will not be eligible to claim the deduction under section 80CCG.
However, any individual who has claimed the deduction in Financial Year 2016-17 and earlier years shall be allowed a deduction in Financial Year 2017-18 if he is eligible for the same.

The deduction under this section is available to a resident individual Investors. Investors whose gross total income is less than Rs. 12 lakhs. To avail the benefits under this section the following conditions should be met:

  1. The assessee should be a new retail investor as per the requirement specified under the notified scheme.
  2. The investment should be made in such listed investor as per the requirement specified under the notified scheme.
  3. The minimum lock in period in respect of such investment is three years from the date of acquisition in accordance with the notified scheme.

Upon fulfillment of the above conditions, a deduction, which is lower of the following, is allowed.

  1. 50% of the amount invested in equity shares; or
  2. Rs 25,000 for three consecutive Assessment Years.