Income tax returns (ITR) filing: Here is what offers the best returns

Section 80C of the Income Tax Act is one of the most popularly used to save income tax. It offers an outer limit of Rs 150,000 as a deduction from total taxable income if such amount is invested in specified assets. Section 80C specifies various asset classes (like PPF, NSC, ELSS, FD etc.) for investment. Among all, investment in tax saving mutual fund schemes (ELSS) offers the best returns. It also has a low lock-in period (three years) as compared to other specified assets with capital gains taxable at just 10% if the profit in that year crosses Rs 1 lakh.

Let us look at three possible scenarios of making judicious use of the section.

People who have just started their career normally tend to have low taxable income resulting from lower tax liability. Thus deduction limit of Rs 1,50,000 may not be required to be exhausted in entirety and they can use their EPF contributions if any for claiming deductions under Sec 80C. However, if the amount is not sufficient, ELSS to be opted for claiming residual tax benefits.

When you are 15 years into your career, homeowner with family, Section 80C takes on a different meaning. Your EPF contribution would have increased your rising income levels. You are likely paying hefty tuition fees for your kids and that also qualifies under Section 80C. Now that you own a home, home loan principal also qualifies for Section 80C.Now is the time to look beyond Section 80C limits and look for wealth creation. After all, your wealth creation goal cannot be driven purely by Section 80C. Very importantly, you must remember that any Section 80C decision that you take at this stage must fit into overall financial plan.

If you are now 55 years old and moving towards a peaceful retirement, by now your home loan is repaid and your children are through with their formal education. So these two items will not exist in your Section 80C calculation. Your EPF contribution is large enough to take care of your tax saving needs. What you should be focusing on now is to keep translating your assets as they mature into a mix of liquidity and productivity. So if your PPF has matured or FDs have matured, you must look at converting them into less risky debt funds.

The writer is head of Research and ARQ, Angel Broking