Tax Planning, Investment and Finance
2. Tax Planning
3. Tax Saving Options
Investment involves selection of the right kind of instrument/schemes with objective of maximizing returns on investments. The instruments carrying higher risk usually yield higher returns but they may not yield any return or may even result in loss. The decision regarding the type of instrument/investment depends upon the risk taking capabilities of individuals. As the risk taking capability vary from person to person according to their risk taking nature, age, family and other responsibilities/obligations, availability of surplus funds for investment etc., the choice of investment instruments will
vary from individual to individual. For example, a retired person may accord priority to invest major portion of his saving in more safe i.e. less risky and regular income yielding investments than in higher income yielding and more risky investments.
Post office Deposits Schemes
Public Provident Fund Scheme
Mutual Funds as A Ta Saving Option
Life Insurance as A Tax Saving Option
Health Insurance as A Tax Saving Option
Home Loans as A Tax Saving Option
Tax Planning involves making investments with the objective of minimizing the tax liability and maximizing returns.Everyone should try to do tax planning to maximize his income by saving on taxes.The amount of tax to be paid is related to the source(s) of income viz. income from salary, income from business, income from house property, interest income, income from dividends etc. and the amount and type of investment made. The income from different sources is taxed differently. There are provisions exemption of certain incomes, deductions from aggregate income. The deductions/ exemptions are available on different tax saving instruments/schemes are also different. Therefore, tax planning will involve selection of right kind of instruments/schemes for investing the surplus
income/saving keeping in view the source(s) of income, period for investing the funds, type and amount of tax benefits available liquidity and safety of investments etc.
Tax Saving options”
Public Provident Fund(PPF0 Accounts:
The deposits in PPF accounts are eligible for relief under section 80C of the Income Tax Act.
The interest eared on deposits in PPF accounts is fully exempt from income tax.
The interest and principal in a PPF account cannot be attached by a court decree.
Special Bank Term Deposit Scheme (BTDS)
The investment under this schee in banks is eligible for relief under section 80C of the Income Tax Act.
National Saving Certificate NSCs
The investment in NSCs is eligible for relief under section 80C of the Income Tax Act.
The interest accrued on NSCs, though taxable, is treated as investment for the purpose of section 80C of the Income Tax Act.
Post Office Time Deposit Scheme
The investment under this scheme in post Offices is eligible for relief under section 80C of the Income Tax Act w.e.f. the
financial year 2007-08 i.e. Assessment year 2008-09
Post Office Senior Citizen Scheme
The investment under this scheme in post offices is eligible for relief under section 80C of the Income Tax Act w.e.f. the financial year 2007-08 i.e. Assessment year 2008-09
The premium paid by an individual for lifr insurance of self or spouse or any child of such individual and the same by a Hindu Undivided Family for life insurance of any member is eligible for deduction form income under section 80C of the Income tax Act. The maximum deduction available is upto a maximum of Rs. 100,000/- under Section 80C alongwith otherinvestments under section 80C, 80CCC and 80CCD.
The sum received (including the bonus) under a life insurance policy ( other than any sum received under sub-section(3) of section 80DDA or under a keyman insurance policy) is totally tax free.
The investment in health/medical insurance of self or family members is exempted under section 80D upto Rs. 20,000/- for senior citizens and upto Rs. 15,000/- for others. An additional relief for health/medical insurance of parents, Rs. 20,000/- if parents are senior citizen and Rs. 15,000/- for others, is available w.e.f. Assessment year 2009-10. Therefore the maximum deduction available under Section 80 is to the extent fo Rs. 40,000/-. This relief is in addition to the maximum relief of Rs.150,000/- available for investments under section 80C, 80CCC and 80CCD.
The repayment of housing loan upto Rs. 1,50,000/- (inclusive of other investment u/s 80C) qualifies for relief under section 80C of the Income Tax Act.
A further rebate in the form of deduction on accrued interest upto Rs. 1,50,000/- per annum from the total income is available under Section 24 of the Income Tax
Deductions is available under section 80E of Income Tax Act for any amount paid in the previous year by an assessee out of his income chargeable to tax, by way of interest on loan taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his higher education or for the purpose of higher education of his relative ( spouse and children).
The investment in Equity Linked Tax Saving Mutual Funds is eligible for deduction under section 80C of the Income Tax Act.
These funds usually have a lock-in period of minimum three years.
The income earned on mutual funds is exempted from Income Tax in the hands of investors.