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   Did you know your investment in the Public Provident Fund (PPF) will fetch you a return of 8% only if you deposit the money before the 6th of every month? In case of cheque payments, ensure your cheque gets cleared by this date. Hold on for a second. Why are we boring you with tax-saving tips in April — after all, you have the luxury of another seven to nine months for tax planning? Well, if you want to make every penny count, capitalise on your PPF investment or avoid buying last-minute expensive insurance, start investing now. You have to follow a systematic approach to tax planning if you want to make gains from these investments than merely save on taxes. "The best thing for an investor to follow is to invest in tax-saving instruments from April itself. The salaries shrink in the months of January and February. Investing the balance funds for savings taxes will tighten cash flows.

ALIGN PLANNING WITH GOALS

Investors should link their tax saving with their investment objective. For instance, they should not buy an insurance policy to save tax. But if they need insurance, then they should definitely consider that as it will also save tax.

USE THE BEST PPF & NSC COMBO

The most attractive feature of PPF is a tax-free return of 8%, which is compounded on an annual basis. For example, if you invest . 10,000 every year for 15 years your corpus adds up to . 2.93 lakh at maturity. This entire sum is tax-free in the investors' hands as per Section 80C of the Income Tax Act. Apart from a post office, a PPF account can also be opened in State Bank of India (SBI) and its associates and other select nationalized banks. The minimum and the maximum amount are capped at . 500 and . 70,000 respectively. The rate of interest for an NSC is 8% (compounded half yearly). If you invest . 1,000, the amount grows to . 1,601 in six years. You can opt for a judicious mix of NSC and PPF so as to benefit from the interest rate movements in either direction. The interest rate is revised at regular intervals on PPF, whereas an individual can lock in his money at a single rate for six years in an NSC. For example, in a falling interest-rate scenario, you may end up pocketing a better rate on PPF than an NSC. However, if the interest rates were to move upward, NSC would be a more rewarding. However, do remember that interest earned from NSC is taxable even though there is no TDS.

HIGH SALARIED SHOULD AVOID NSC

The net return earned from NSC becomes less attractive for individuals who fall in the high tax bracket. If an individual falls in the 30% tax bracket, he earns only 5.6% return as against 8%. Even as we are inching towards 0% inflation, retail inflation is still at around 9-10%.

ELSS COMES WITH A RISK FACTOR

While PPF and ELSS are two good choices when it comes to saving tax, the former has poor liquidity and investment in the latter involves higher risk. Investors should understand the product, and set their goals first and invest in available tax-saving instruments based on their risk appetite. If the new DTC (Direct Taxes Code) is implemented, as proposed, then ELSS will no more be eligible for deduction under Section 80C. Those investing through SIP should mention the end date March 2012 in their application form. Do not extend the ELSS beyond March 2012 unless there is some changes in DTC. Also, opt for the growth option in ELSS.

GO FOR JOINT HOME OWNERSHIP

There is no choice when it comes to buying a house in the city. Rising real estate prices have pushed couples to apply for joint home loans. But even if you are not looking to own a house in the city, you can invest in a house in some other city and gain from tax-saving on joint loans. Just taking a join loan (co-borrower in banker's parlance) won't make you eligible for tax breaks. Both of you can avail tax benefits on the home loan only if both of you are the co-owners of the property. You have to consider the repayment capacity of each spouse while deciding the share of the loan. So, a couple can be equal owners but if their share of the loan is in the ratio of 60:40 or 70:30, the tax benefits would be shared in that proportion. Ideally, an individual in the higher tax bracket should opt for a higher ratio of the loan to save on more taxes.

You have to get a break-up of share of the loan on a stamp paper at the beginning itself. Co-borrowers should enter into a simple agreement with the spouse on . 100 stamp paper. This agreement should basically contain the share of the ownership along with that of the home loan availed of by the couple. You need two copies of the certificate from the housing finance company (HFC) and each of you can submit copies of the certificates along with a copy of the agreement signed between the two of you. The maximum tax deduction available for a single borrower is . 1.5 lakh. This deduction would apply to each borrower, hence the total possible deduction adds to . 3 lakh. Each borrower has to provide a copy of the borrower certificate to claim his or her respective tax relief. However, there are no clear guidelines on this matter. So, it is possible for either of the borrower to miss out on the tax rebate. In such cases, they can claim it as a refund while filing tax returns.

The idea is not to treat tax savings in isolation. It should be in line with you financial goals. Buy a PPF only if you have some goal to be fulfilled after 15 years. Buy a house only of you want to stay in it or invest in real estate and look at insurance only for protecting your family.

Happy Investing!!

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