When to invest in income tax saving schemes to get best returns

Income Tax for Assessment Year 2019-20: The Income Tax proposals announced in Interim Budget 2018 has provided a big opportunity to middle-class taxpayers to make the most of their hard-earned money. By investing wisely in tax-saving instruments, an individual taxpayer can get full tax exemption on an annual income of around Rs 8 lakh. However, is this the right time for investing in the tax-saving schemes? 

The interim budget has given full tax exemption on an annual taxable income of Rs 5 lakh. Along with this, the standard deduction limit has been raised from Rs 40,000 to Rs 50,000. But these proposals will come into effect only from 1st April 2019 ( new financial year). Hence, if you wish to invest in view of the changes announced in the budget, the best date would between April 1-April 5.  It is advised to open the account before the 5th of April. Then your investment will be considered an investment in the current year. However, if you miss the April 5 deadline, the account opening year will be considered from the next financial year.

As per SBI official website, the interest on PPF is "calculated on the minimum balance (in PPF Account) between 5th day and end of the month and is paid on 31st March every year." 

The tax-saving schemes like the PPF give the best returns when the investment period is long because of the power of compounding. The interest on the investment amount is compounded annually.  So, if you invest in the middle of the year, say September, then the compound interest will be calculated for the remaining months of the financial year from September. However, if you invest on the 1st day of April itself, your investment will earn interest for the whole year. 

Before investing in tax-saving schemes, you should be clear about your needs. For example, if you don't have any pension scheme, opening a National Pension System (NPS) account could be a good option. If you need cash in the next 5-10 years, you can opt for Fixed Deposits, NSC or Kisan Vikas Patra. For more returns but with an inherent risk, you can also put your money in Equity-Linked Saving Scheme (ELSS).

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The new budget proposals make interest income up to Rs 40,000 tax-free. This has made FDs more lucrative for those wanting to save tax as well as earn some interest in the short run.