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Smart Investments your way : Fiscal Year End

Author: Sashank Nori

2015-16 fiscal year is about to come to an end.

This is the time when we review our pay slips – we see a lot of taxes levied on our income.

We’ve been paying taxes for each and every stuff which we buy /sell/rent/mortgage, etc.… and an income tax on top of it is too hard to digest. Admit that we love our nation and are very responsible to society. But when it comes to pulling out a bill from your pocket where you are not sure you’ll be benefited out of it, trust me that’s the toughest thing to deal with.

We cannot skip the taxes for sure, but the second factor, i.e. to benefit out of it ….. Well… I have figured out few options that government considers as exemption.

The best way to skip or curtail taxes and benefit out of it is to invest.

Again… when I meant investment… I find a majority invest on assets like house /land/property/gold. This looks as good investment, but in my perspective an investment is something which gives you frequent returns and is more flexible or liquid.

Govt. of India has provided tax exemptions if the investments are made in few of these categories.

Tax saving deposits/ FDs

I personally choose this in the last moment (generally after receiving my February pay check), after all my projected taxes were deducted from my salary. This will be any amount that I have in excess other than my savings and can help me claim refund on the taxes paid by investing.

Tax exemption category: section 80C

Returns: Varies with bank chosen for deposit (generally from 8 -9%)

Eligibility: All residents/NRIs.


  • One time investment
  • Can start with as low as Rs 100/- (depends on the offering bank -Max 1,50,000/- as per latest tax slab -2015 )
  • Minimal maturity period is 5 years or more.
  • Interest earned over matured amount is taxable.
  • No premature withdrawal is allowed
  • The tax saving fixed deposit gives you a fixed interest rate. The rate does not change during the deposit period.
  • Can hold more than one FD
  • At the end of the financial year, the TDS will be deducted on the basis of interest accrued on the Fixed Deposit (s).


There are multiple ways to achieve this. Here are four easy ways you can follow to save TDS on FDs:

  1. By submitting Form 15G/15H

If an investor submits Form 15G stating that he has no taxable income, the bank would not deduct any TDS on the interest earned. For senior citizens, the requisite form to avoid TDS is 15H.

  1. Distributing FD investment

Another way to avoid TDS is by splitting the deposit into separate banks in such a way that interest earned from any of the FDs does not exceed the Rs 10,000 limit.

  1. Timing the FD

You can also save TDS by timing your FD in such a way that interest for any of the financial years does not exceed Rs 10,000.

For example, a 12-month fixed deposit of Rs 1 lakh at 10.5 per cent could be started in September as financial year closes on 31st March. This way, the interest would split in two financial years, and hence TDS will be avoided.

  1. Splitting the FD

An individual can start one fixed deposit under his/her personal bank account and another one under an HUF account, and, so, both will be treated as separate. So an investor with an HUF identity can split the corpus under such two heads.

Unit Linked Insurance Plan (ULIP)

With the changes in guidelines on the ulip schemes, this insurance cum investment scheme provided best option for protection along with investment. This should be good choice especially for retirement/children education and other personal benefit options are kept in view.

Tax exemption category: section 80C

Returns: 8-11%

Eligibility: 18-60 years.


  • Recurring investment over long term.
  • Has a mix of insurance along with investment i.e. wealth accumulation along with life cover
  • Has different plans for different goals like retirement planning/ children education etc…
  • No minimal amount (Max 1,50,000 as per latest tax slab )
  • Partial withdrawals allowed only after a specified amount of time (based on plan)
  • An individual may purchase a ULIP in his own name, or for spouse or any child. Child may be married or unmarried, dependent or independent, minor or major – all these investments shall qualify for deduction under Section 80C.
  • No tax on amount during withdrawal
  • Eligible for loans on the investment.
  • The premiums must be paid regularly and the ULIP must be continued to avail tax benefits. In case you discontinue your ULIP before 5 years, you will not be allowed any tax benefits. Any deduction allowed in the previous years shall get added back to your income in the year in which ULIP is closed.
  • Involves surrender charges if quit.

Are Investment Returns Guaranteed in a ULIP?

Investment returns from ULIP may not be guaranteed.” In unit linked products/policies, the investment risk in investment portfolio is borne by the policy holder”. Depending upon the performance of the unit linked fund(s) chosen; The policy holder may achieve gains or losses on his/her investments. It should also be noted that the past returns of a fund are not necessarily indicative of the future performance of the fund.

What should one verify before signing the proposal?

One has to verify the approved sales brochure for

  • all the charges deductible under the policy
  • payment on premature surrender
  • Features and benefits/ maturity options.
  • limitations and exclusions
  • lapse and its consequences
  • other disclosures
  • Illustration projecting benefits payable in two scenarios of 6% and 10% returns as prescribed by the life insurance council.

An Ulip will yield good results only if you hold it for at least 10-12 years. Before that, the plan may not be able to recover the charges levied in the first few years. This is why short-term plans of 5-10 years usually give poor results, which pushes investors to dump them within 3-4 years of buying.

Public Provident fund (PPF) 

This small saving scheme has always been a favorite tax-saving tool, but the linking of its interest rate to the bond yield in the secondary market has made it even better. This ensures that the PPF returns are in line with the prevailing market rates. A lot of banks provide option to and transfer funds using internet banking. The paperwork involved in opening an account is very minimal and is a low maintenance flexible investment.

Tax exemption category: section 80C

Returns: 9% (compounded yearly).

Eligibility: 18-60 years.


  • Recurring investment over long term.
  • Minimum investment of 500/- should be made every year.
  • If you need money, you can withdraw after the fifth year, but withdrawals cannot exceed 50 per cent of the balance at the end of the fourth year, or the immediate preceding year, whichever is lower.
  • The interest you earn on the PPF investment is also exempt from tax.
  • Only one withdrawal is allowed in a financial year.
  • Can also take a loan against the PPF, but it cannot exceed 25 per cent of the balance in the preceding year.
  • Very low rates of interest for the loan.
  • The PPF offers investors a lot of flexibility. You can open an account in a post office branch or a bank.

Maturity Options

Either you can withdraw the amount after the maturity period or PPF account holders have an option of extending their accounts after the 15 year tenure with or without further subscription, for any period in a block of five years. The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed. In case the account is extended without contribution, any amount can be withdrawn without restrictions. However, only one withdrawal is allowed per year.
If you continue the account after 15 years, with continued deposit, withdrawal up to 60 per cent of the balance at the beginning of each extended period (block of five years) is permitted.


The interest rate in your PPF account is calculated on the lowest balance between the fifth and the last day of the month. So to maximize your earnings, try making deposits between the 1st and the 5th of the month. Interest is compounded annually and credited on March 31 each year.

National Pension Scheme

This scheme has been gaining lot of attention these days. There are lot of investor friendly amendments made by the government to attract and educate the employees for retirement planning. Exclusive tax benefit of Rs. 50,000 u/s 80CCD (1B) has made NPS an attractive investment option for saving tax.

Tax exemption category: section 80C + 80CCD

Returns: 9%

Eligibility: 18-60 years.


  • Recurring investment over long term.
  • initiative for effective retirement planning.
  • NPS allows you an additional tax deduction on saving of Rs. 50,000 over and above the limit of Rs. 1.50 lakhs available under section 80C
  • A subscriber needs to contribute a minimum amount of Rs 6000 in a financial year.
  • Has an option to choose where and how your investments can be made.
  • Withdrawal after a particular period is allowed but it’s a partial withdrawal.
  • Complete withdrawal is only after retirement.
  • Requires a PRAN number to contribute.
  • It is portable – Subscribers can operate their account from anywhere in the country, even if they change the city, job or their pension fund manager.
  • It is regulated – NPS is regulated by PFRDA, with transparent investment norms and regular monitoring and performance review of fund managers by NPS Trust.
  • At present, interim utilization of pension wealth (such as availing of loan) by the subscriber before exit is not allowed under NPS. However, in line with the PFRDA Act 2013, PFRDA is considering the option of interim withdrawal and, the same is yet to be finalized.

Maturity Options 

Upon Normal Superannuation – At least 40% of the accumulated pension wealth of the subscriber has to be utilized for purchase of annuity providing for monthly pension of the subscriber and the balance is paid as lump sum to the subscriber.
In case the total corpus in the account is less than Rs. 2 Lakhs as on the Date of Retirement (Government sector)/attaining the age of 60 (Non-Government sector), the subscriber (other than Swavalamban subscribers) can avail the option of complete Withdrawal.

Upon Death – The entire accumulated pension wealth (100%) would be paid to the nominee/legal heir of the subscriber and there would not be any purchase of annuity/monthly pension.

Exit from NPS Before the age of Normal Superannuation – At least 80% of the accumulated pension wealth of the subscriber should be utilized for purchase of an annuity providing the monthly pension of the subscriber and the balance is paid as a lump sum to the subscriber 

One of the most outstanding features of the NPS is the ‘lifecycle fund’. It is meant for those who are not financially aware or can’t manage their asset allocation themselves. It is also the default option for someone who has not indicated the desired allocation for his investments. Under this option, the investor’s age decides the equity exposure. The 50 per cent allocation to equity is reduced every year by 2 per cent after the investor turns 35, till it comes down to 10 per cent. This is in keeping with the strategy to opt for a higher-risk, higher-return portfolio mix earlier in life, when there is ample time to make up for any possible black swan event.

Gradually, as the investor approaches retirement, he moves to a more stable fixed-return, low-risk portfolio. This automatic rejigging of the asset allocation is a unique feature of the NPS. No other pension plan or asset allocation mutual fund offers such a facility to investors. There are a few funds based on age, but they are one-size-fits-all solutions, not customized to the individual’s age.

Update#: Union Budget 2016 proposes that 40% of the corpus that an investor can withdraw on maturity to be made tax free. The remaining 60% of the NPS corpus escapes immediate taxation because it is compulsorily put in an annuity for a monthly pension that is fully taxable.

VPF – Voluntary Provident Fund

Every month, your employer deducts 12% of your basic salary (including dearness allowance) towards Employees’ Provident Fund (EPF). Actually, you can contribute a lot more—over and above the compulsory deduction of 12%. In fact, you can contribute the entire salary (i.e., remaining 88 percent) towards VPF even if your employer is paying only 12%.

Tax exemption category: section 80C

Returns: 9%

Eligibility: Only salaried employees under EPF can opt for VPF.


  • VPF is one of the most useful tax saving option.
  • An advantage is that investments are made from pre-tax income
  • Employee can contribute more than 12% of his regular PF via VPF
  • Income tax exemption at all 3 stages i.e. contribution/investment, accumulation/returns and at the time of withdrawal.
  • One time premature withdrawal is allowed from EPF but only for marriage of a child, property purchase or medical emergency.
  • For private firm employees there is an option to withdraw at the time of leaving job if there is a gap of 2 or more than 2 months between two jobs.
  • Tied to UAN

Considering there is a limit on the maximum amount that you can deposit in your PPF account every year, and that inflation will certainly undo part of your wealth creation effort, you need other options to augment your savings.

Employee Provident Fund – new amendments [2016]

  • The EPF members can not withdraw full PF amount before attaining the age of retirement unlike before where an employee can withdraw all the previous organization contributions along with his contribution to PF if shown proof of unemployment.
  • The current amendment states that only employee’s contribution is subjected to complete withdrawal.
  • This will ensure that the employee’s PF account will not be terminated until his retirement.
  • As per the earlier norms, the Employees’ Provident Fund Organization (EPFO) subscribers were allowed to claim 90 per cent of their accumulations in their PF account at the age of 54 years and their claims were settled just one year before their retirement.
  • Now, the subscribers will not be able to claim withdrawal of their provident fund after attaining age of 54 years. They would have to wait till attaining the age 57 years
  • In another enabling amendment to the scheme, the subscribers can directly file their claims like PF withdrawals without attestation of present or previous employers.
  • Earlier EPFO has launched new simplified form for subscribers who have activated their Universal Account Number to apply directly for settling such claims.
  • This amendment to scheme will remove any legal hassle for settling such claims through new simplified forms.

So, choose your options at your convenience. Save for the future. Save your taxes.


Sashank  is a Software Engineer by profession, a graduate of JNTU university Hyderabad. A keen researcher in the field of Finance and Investments, he also loves to travel and is passionate about Science and Fiction. He works currently in Chicago.

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