The 31st March is approaching very fast and the people whose incomes have crossed the exemption limit, must be busy doing some tax planning to save taxes on their incomes. The salaried class who form a significant percentage of the individual taxpayers, must be geeting reminders from the tax departments of their organization to furnish the details of their investments to make final adjustments. There is a tendency among most of us to hurry through our investment decisions which surely affects the quality of investments. In the rush of hours we tend to be guided by pure instinct than rational judgement. It is important for all of us to do some survey of the various financial products aiming at saving taxes which are known as Tax Saving Schemes. As per provisions of Section 80C of the Income Tax act, we are allowed to save rupees thirty thousand on an investment of rupees one lakh. Let us briefly examine the avenues available for investment of this sum.
The most popular among the people to save their taxes is National Savings Certificate (NSC) which has a lock-in period of six years with a return of 8.1% which is taxable. The conservative people are heavily invested in this.
The Public Provident Fund is another avenue which has a lock-in period of 15 years with a rate of return of 8% which is tax-free. As the return is tax-free one can understand the rationale behind investment in PPF but it return is far from being attractive.
Senior Citizen Savings Scheme is, as the name of the scheme suggests, available for senior citizens alone which is for a period of five years with a rate of return of 9% which is taxable.
The slightly higher rate of return is set off by its being taxable.
Fixed Deposits with banks for five year tenure with a rate of return of 7.25% to 7.75% which is taxable. It represents one of the avenues which is most unrewarding in terms of return as well as incidence of tax.
Employees Provident Fund which has a time horizon of 58 years with a rate of return of 8.5%. What must not escape attention that withdrawals are taxable in cases where such withdrawals are made by employees who have worked for less than five years and in other cases it is tax free.
The Post Office Fixed deposits provide another popular mode to save on your taxes which offers a taxable rate of return of 7.5%.
Besides, the ones discussed above, there are some products which have caught on the imagination of the people by virtue of their ability to offer superior return subject to the moderate market risks, which can be briefly explained as follows:
Unit linked Insurance Policies which are known as ULIPs in short, the return of investments in this scheme is completely dependent upon the vicissitudes of the market which is tax free with a time-frame of three years.
Equity-Linked Savings Scheme (ELSS) partake the character of ULIP in terms of return which is also market-driven with a time-frame of three years and it is tax free.
The New Pension Scheme which has a time horizon of 60 years and the returns are market-driven. It should be noted that the proceeds at maturity would attract tax if annuities are not purchased with it.
This is just a bird's-eye-view of the various avenues available which, hopefully, might be followed by another article dwelling on how one can benefit by a judicious mix of these avenues.