Investments in Tax Saving Products an Overview
The best way to attain monetary independence is through utmost savings and nominal amount of tax
reduction from your earnings. However, investments are not done for tax saving purposes only.
PLAN
INVESTMENT
INTEREST RATE
Bank FD
Min : ` 100
Max :
8%-10%
PPF
Min : ` 500
Max :
Compounded at an annual interest of 8%
NSC
Min : ` 100
Max :
Compounded on 8% twice a year
Infrastructure Bonds
Min : ` 30,000
Compounded on 5% to 6% or 8.7% to
Max : ` 1, 00,000 11.71%,
Life Insurance
Schemes
Depends on
policy
ELSS
Min : ` 5,000
Based on market performance
Max : ` 1, 00,000
ULIPS
Depends on plan
Depends on policy
Depends on plan
Explaination of Above mentions Chart
Bank Fixed Deposits
In a bank fixed deposit saving plan, a specific amount of money is invested in the bank for a certain
period of time by allotting a static rate of Interest. The minimum investment in most of the banks is `
100. At present the rate of interest in most of the banks is between 8%-10%.
Benefits under Bank Fixed Deposits:
The investment in bank fixed deposit saving plan is tax free under section 80L up to a limit of
` 12,000.
The deposits will be secure as they are indemnified under the Deposit Insurance & Credit
Guarantee Scheme of India.
The investor can apply for loans upto 75%-95% of the amount deposited under the bank
fixed deposit against the receipts of the fixed deposits
Bank Fixed deposits are best to opt for if you want to invest your money for an extended
period of time besides getting high returns.
Public Provident Fund (PPF)
Public Provident Fund (PPF) is supported by the government and is generally safe with
comparatively high returns. The minimum limit of investment in PPF is ` 500 and the maximum is
upto ` 70,000 per annum. At present PPF is compounded at an annual interest of 8%.
Benefits under Public Provident Fund (PPF):
The investor enjoys the rebate on his investment under section 80C of I.T. Act 1961
Interest income on PPF and the final amount is considered as tax free
Investments in small amounts can be made every year for a longer duration
Investments are fixed deposited for 15 years
Balance amount held in Public Provident Fund is tax exempted from wealth tax
National Savings Certificate (NSC)
Referred by its ellipsis NSC, National Saving Certificate is a post office savings plan. Like PPF, NSC
is also supported by the government and is one of the secure investment alternatives. There is no
maximum limit on investment; however, the minimum investment limit is ` 500 which can be issued
in small amounts of ` 100, ` 500, ` 1, 000, ` 5, 000 and ` 10, 000. The interest on investment is
compounded on 8% twice a year.
Benefits under National Savings Certificate (NSC):
The investor enjoys tax rebate on initial 5 years under section 80C of Income Tax Act
Documentation can be guaranteed as safety against a mortgage to banks or Government
Institutions Provision of encashment of documentations via banks.
However, the investment in NSC is locked in for 6 years and is taxable under 'income from
other sources'.
Infrastructure Bonds
An investor can save on taxes by investing in Infrastructure Bonds as mentioned under Section 88 of
the Income Tax Act, 1961. The maximum investment is ` 1, 00,000 and the minimum limit is 30,000.
The investments will be fixed deposited for 3 years and the interest will be compounded on 5% to
6% or 8.7% to 11.71%, if the tax break is considered.
Benefits under Infrastructure Bonds:
Investments in infrastructure bonds from different banks are eligible for a rebate under
Section 88 of the Income Tax Act.
However, the interest will be chargeable; the investor can assert tax exemptions against ` 15,000
under Section 80L.
Life Insurance Schemes
While applying for Life Insurance plans look for schemes which not only provide high returns but also
maximize your insurance policy. The maximum and minimum limit of investment, it lock-in period and
returns depends on the terms and conditions of the cover. To qualify for rebate under Section 88, the
total premium amount should be within ` 70,000
Benefits under Life Insurance Schemes
The investor can enjoy rebate on his investments under section 80C
Equity Linked Savings Scheme (ELSS)
ELSS is a savings plans associated with equity markets. The maximum investment amount is ` 1,
00,000 and the minimum amount is ` 5,000. The investments are fixed deposited for three years and
the ELSS returns are based on market performance.
Benefits under Equity Linked Savings Scheme (ELSS)
The entire investments done under Equity Linked Savings Scheme qualify for tax deduction
under 80C of Income tax Act, 1961.
Unit Linked Insurance Plans (ULIPS)
ULIPs operate like a mutual fund does and offers a life insurance. Both the maximum and minimum
amount and lock-in period of investment depends upon the terms and conditions of the plan. The
premium paid by the investor is invested in instruments like commercial bonds, public securities and
stocks.
Benefits under Unit Linked Insurance Plans
Investments under ULIPs are eligible under Section 80C of the Income Tax Act.
Maturity earnings from ULIPs are tax exempted
Tax Planning :
Tax Planning India is an application to reduce tax liability through the finest use of all accessible
allowances, exclusions, deductions, exemptions, etc, to trim down income and/or capital profits.
Salaried individuals in India are not fully aware of the tax planning exercise which is why they rush at
the end of the tax-planning season and make investments to reduce their tax liability. This has
negative effect on tax payable by them and they eventually end up paying more taxes than they are
required
Tax-planning tips that can assist salaried people to reduce their tax accountability
1. Make full use of the entire Section 80C deduction - The maximum reduction available in
Section 80C is ` 100,000 and salaried citizens whose gross salary is ` 250,000 or more are entitled
to use the full ` 100,000 limit.
Individuals who make monetary infusions of over ` 100,000 in Section 80C in selected areas fail to
understand that the advantages are limited. In spite of investing 70,000 and 40,000 in Public
Provident Fund and ELSS respectively, the amount entitled by the investor is only 100.
Following investments/contributions meet the criteria for Section 80C reduction:
Public Provident Fund
Accrued interest on National Saving Certificate
Life Insurance Premium
National Saving Certificate
Tuition fees paid for children's education (maximum 2 children)
Principal component of home loan repayment
5-Year fixed deposits with banks and Post Office
Equity Linked Savings Schemes (ELSS)
2. Reduction of tax liability beyond Section 80C deductions - If your salary surpasses ` 250,000
pa and the reductions under Section 80C are not enough to minimize the general tax liability
consider the following:
Home loan: Interest payments of upto ` 150,000 pa are entitled for reduction under Section
24.
Medical insurance: A deduction of upto ` 15,000 pa under section 80D is applicable under
this.
Donations: Tax advantages under Section 80G entitle the donations to particular
funds/institutions.
3. Assert tax advantages on house rent paid - If HRA is not included in the salary structure then
the salaried individuals can asset rent paid by them for residential lodging. This reduction is
accessible under Section 80GG and is smallest amount of the following:
25% of the total earnings or,
` 2,000 every month or,
Surplus of housing charge paid over 10% of total salary
4. Reorganize the salary - Reorganizing the salary and incorporating certain apparatus can help in
the long run in minimizing the tax liability. In order to assert tax benefits salary reform is a more
competent measure. The following can be included in an individual's salary structure:
Food coupons can release up to ` 60,000 per year from tax.
Medical expenses which are compensated by the employer spare up to ` 15,000 per year.
House Rent Allowance (HRA) should be incorporated in the salaries of individuals who stay
in rented houses
Transport allowance discharge upto ` 800 per month.
5. Go for a combined home loan - The primary reimbursement on a home loan is entitled for a
reduction of up to ` 100,000 pa and the interest rewarded is entitled for a reduction of up to `
150,000 pa. When a home loan is for a considerable amount then the interest and chief
reimbursement surpass the allotted limit. A salaried individual can go for a combined joint home loan
with his parent, spouse or sibling, to guarantee the best utilization of tax advantages.
In this way both the owners can assert tax reductions in the percentage of their stake holding in the
loan.
1. 30 Percent Tax Slab Now Starts From 10 Lakhs
This is happy news for those who earns huge money as the 30 percent tax slab now starts
from 10 lakhs rather than 8 lakhs. Both men and women are entitled to pay the same
provision and there are no exemptions on gender basis.
2. Deduction of up to 1 Lakh
There are many investment instruments which can help you get a deduction on your taxable
income and save up to 1 Lakh. For example, any investor earning more that 10 lakhs can
invest in the Rajiv Gandhi Equity Saving Scheme (RGESS) and get a deduction of 50 percent
of the investment.
3. Deduction on Annual Health Checkup
On Medical health checkup before 31st March 2013, deduction is accessible up to 15, 000
for self insurance, insurance for spouse and dependent children and 20, 000 for senior
citizens. If you parents come under the senior citizens group a deduction for insurance of
father, mother or both is available to the amount of 20, 000.
4. Life Insurance Premium for Individuals
Tax deductions can also be availed on Life Insurance Premium for individuals for which the
policy needs to be in the name of the assesse's or spouse's or any child's name. In case of
Hindu United family (HUF) it can allowed on life of any one member of the family. The
deduction is only valid on insurances purchased after 1st April, 2012 and only if the
premium is less than 10 percent of sum assured.
5. Deduction for Interest from Savings Bank Accounts
One can also get a tax deduction on the gross total income by way of interest on savings
account. The deduction can be up to 10, 000 in case of interest on deposits in savings
account (except time framed deposits) with a bank, co-operative society or post office. This
will be allowed w.e.f. 1st April 2012 (Assessment Year 2013-14).
6. Use Cheques for Charity
Section 80G specifies many deduction opportunities incase of one doing charity. But the
deduction can only be availed if the amount is more than 10, 000 and paid in the form of
cheques. There are many provisions that qualify for deduction up to either 100 percent or
50percent with or without restriction as given in section 80G. Few Cases where 100 percent
tax deductions are granted are charity to National Defence Fund set up by the Central
Government, Prime Ministers National Relief Fund and National Foundation for
Communal Harmony etc.
7. Deductions for Physically Disabled
If a person is physically disabled or challenged, he or she is entitled to a deduction on their
taxable income. Deductions up to 50, 000 is allowed in such cases. If a person is suffering
from more than one physical disability deduction of 100, 000 shall be available, as
specified in u/s 80U. To avail the above mentioned tax redemptions, the person should have
the proper documents and certificate from the Government of India.
8. End of Section 80CCF
The section 80CCF that allowed exemption on taxable amount if one invested in Long Term
Infrastructure Bonds will be no more effective in the financial year 2013. The maximum
amount allowed for deduction under this section is 20, 000. In the budget 2011 the profits
under this section were extended up to financial year 2012. Therefore, the deduction under
this section shall not be available for AY 2013-14.
9. Pay Your Tax
If your payment of tax is yet due to the tax department, pay it soon to avoid paying interest
on tax due which is collected under Section 234B and 234C. However this provision does
not apply on senior citizens who do not have any revenue from business or profession. They
only have to figure out their tax liability amount at the time of filing their income tax return
and pay the self assessment tax.
10. File Your Tax Returns
If your earnings surpass the exemption limit and you have not yet filed your tax return, its
time you do it by March 31st, 2013. Even if you do not have any tax accountability after
subtraction of TDS and advance Tax etc, still its suggestible to file the income tax returns.
This is suggested by most of the financial experts as there is a penalty of 5, 000 for failure
to file the return of income by March 31.
