Skip to main content

Tax planning can increase investment yield


   While planning tax for the financial year should not be a year-end activity, many evaluate their tax savings options only towards the fag end of the financial year. The last minute rush often results in inappropriate investment decisions. The term tax planning is often misconstrued as planning for the Section 80C related investments. Although planning your investments to benefit from Rs 1 lakh deduction provided by Section 80C is a significant part, tax planning could have a much wider scope for certain individuals depending on their financial situation. Tax planning is an integral part of overall financial planning and you should refrain from making ad hoc investments with the objective of saving tax.


   As we progress towards the last quarter of the current financial year, it is time to sit up and get your tax related papers and investments in place. There is a host of tax saving instruments qualifying for a deduction under Section 80C of the Income Tax Act. Section 80C allows a deduction of Rs 1 lakh from the gross total income for certain expenses and for investments made in certain tax-saving instruments such as Provident Fund (PF), Public Provident Fund (PPF), life insurance, National Savings Certificate (NSC), and equity-linked savings scheme (ELSS) to name a few.
   

Here are some tax-saving instruments:

Provident fund    

Employee's contribution to a recognised Provident Fund qualifies for a deduction under Section 80C. While contributions to PF work towards building a corpus for retirement, they also enable to save tax along the way.

Public Provident Fund    

Public Provident Fund (PPF) qualifies as one of the best instruments for saving tax. Its safety, high post-tax effective return and exemption from tax make it a must-have in your debt portfolio. The tenure of PPF is 15 years and a minimum investment of Rs 500 per year is required to keep the account alive and maximum contribution in any year is Rs 70,000. A contribution of Rs 70,000 per year for 15 years could grow to a neat Rs 19 lakhs on maturity coupled with the benefit of tax saving every year.

NSC and FD    

Another traditional instrument which has been very popular for tax saving is the National Savings Certificate (NSC). It comes with a lock-in of six years and interest at eight percent compounded half yearly which is taxable, thereby reducing the effective yield.


   Banks offer five-year fixed deposits which are eligible for deduction under Section 80C but interest received is taxable. While PPF scores better than these two instruments on the returns front, the lock-in period is comparatively lesser for these.

Life insurance    

Premiums paid for life insurance plans are deductible under Section 80C. Insurance however should not be looked at as a tax saving product and should be bought strictly on need basis. People often remain under-insured when they buy policies for tax breaks or land up buying inappropriate products in order to get a tax exemption.

Equity-linked savings scheme    

Equity-linked savings scheme (ELSS) offers the twin benefits of tax saving and equity investing. These are equity mutual funds with a lock-in of three years, dividends declared are tax-free and since gains are long-term in nature, there is no capital gains tax. ELSS is suitable for investors with high risk appetite.


   In addition to these instruments, other qualifying amounts for Section 80C are investments in post office time deposits, Senior Citizens Savings Scheme, tax-saving bonds and contributions to pension funds, home loan principal repayments and tuition fees of children.


   While choosing the investments, you should give due consideration to lock-in periods, posttax yields and risk involved. A well thought-out tax plan aligned with the overall asset allocation, goals and risk appetite will bode well for the future.


Popular posts from this blog

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now