Plan investment with tax benefits in mind

Tax planning investments made in a hurry may strain your finances. Let’s discuss some investment options:

Section 80C: The maximum deduction is capped at Rs 150,000 in a particular fiscal. Here are a few tools prescribed under this section.

PPF: Conventional, yet the most beneficial and top rated investment that an individual prefers to avail. The public provident fund (PPF) is especially used by those not covered by the employees’ provident fund. PPF accounts can be opened at post offices and authorised banks. Its principal advantage is that its interest income, currently at 8.7 per cent per annum, is tax free. Other features include five-year lock-in-period and 15-year holding period that can be extended by another five years.

Life insurance: Insurance premium paid for the life coverage of own, spouse or any child is eligible for tax deduction. The policy may be a term plan, endowment or unit-linked. Like PPF, returns from these policies are not taxable and are available with a minimum term of five years. The premium paid for annuity plans are also tax deductible.

Five-year tax saving FDs: The schemes are provided by scheduled banks and post offices in the form of tax saving fixed deposits with a lock-in-period of five years. These FDs are currently fetching an interest of around 8.5-9 per cent per annum. However, the interest income is taxable.

MFs/ELSS: Tax Saving Plans is an investment in an equity diversified fund wherein the investor gets both benefits — tax deduction and capital appreciation. The lock-in period is three years with no pre-maturity withdrawal. Dividends and capital gain from these schemes are not taxed.

NSC: National savings certificate (NSC) offers similar rate of return as the above schemes and are provided by post offices. Two schemes are in operation. The first is NSC (VIII issue) which offers an interest rate of 8.5 per cent per annum with a maturity period of five years. The other is NSC (IX issue) that offers interest rate of 8.8 per cent with 10-year maturity period. The only drawback of these schemes is that the interest income is taxable. However, the interest accrued yearly is considered as reinvested in the scheme and qualifies for 80C deduction(except in the last year).

Home loan: Banks and financial institutions offer housing loans at nominal interest rates and attractive repayment facilities. This makes the owning of a residential house affordable. Deduction of the principal amount paid towards the housing loan is available to an individual subject to the maximum of Rs 150,000.
Further, the interest paid with a cap of Rs 200,000 in respect of a self occupied house property is eligible for deduction under Section 24. There is no limit to the deduction of the interest in the case of a let out house property.

Section 80CCD: Contribution to government notified pension schemes (national pension scheme) can fetch you an additional deduction of Rs 50,000.

Section 80CCG: Rajiv Gandhi equity savings scheme (RGESS): An individual whose annual income does not exceed Rs 12,00,000 can invest up to Rs 50,000 in a financial year and can claim tax deduction of 50 per cent of the amount invested. The dividend payouts are tax free and the gains arising can be realised after a year. [source:

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