Though bank fixed deposits and NSCs are ultra-safe and offer assured re turns, there is a heavy price to be paid for this safety and surety of returns. The interest earned on the deposits is fully taxable, so the post-tax returns are not very lucrative (see table). Those in the highest 30% tax bracket (taxable income of over `10 lakh a year) should not invest in these deposits.They are best suited to taxpayers in the 10% bracket (taxable income of less than `5 lakh a year) or senior citizens who have already exhausted the `15 lakh overall investment limit in the Senior Citizens' Saving Scheme.
Don't let the high interest rates offered on the 5-year and 10-year NSCs mislead you.Since the interest is fully taxable, the post-tax yield is far lower. In the 30% tax bracket, it is close to 6% (see table). The tax-free PPF is a far better option than these instruments.
The positive feature of bank deposits and NSCs is that they are straightforward instruments and don't require a multi-year commitment. If you don't have time to study the fine print of other options and the deadline is nearing, invest in fixed deposits.
They are also widely available. Just walk into any bank branch or Post Office branch and invest. Of course, you will have to comply with the KYC norms while doing so.
One ticklish area is the TDS rule. If the interest income exceeds `10,000 in a year, the bank will deduct TDS. Some investors try to avoid the TDS by splitting their investments across 2-3 banks. This is not a good idea because one has to pay tax on this income. In fact, the TDS is only 10% on the interest earned. If the taxpayer is in the higher income slab, he will have to pay more tax.
On the other hand, some retired taxpayers are subjected to TDS even though they are not liable to tax. Since their total income from interest exceeds the threshold, they have to first pay tax and then claim it back after they file returns. This problem needs to be fixed.
Top 10 Tax Saving Mutual Funds to invest in India for 2016
Best 10 ELSS Mutual Funds in india for 2016
1. BNP Paribas Long Term Equity Fund
2. Axis Tax Saver Fund
3. Franklin India TaxShield
4. ICICI Prudential Long Term Equity Fund
5. IDFC Tax Advantage (ELSS) Fund
6. Birla Sun Life Tax Relief 96
7. DSP BlackRock Tax Saver Fund
8. Reliance Tax Saver (ELSS) Fund
9. Religare Tax Plan
10. Birla Sun Life Tax Plan
Invest in Best Performing 2016 Tax Saver Mutual Funds Online
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