January 29, 2009

Tax Saving Investment Options for 2009

With only two months left being left for the close of financial year 2008-2009, its high time that you work up your taxes and plan out your investments to minimise your tax liability. Under the purview of the Indian Income Tax Act, you can avail a maximum benefit of Rs. 1 Lakh by investing under the options mentioned under the section 80C and a maximum of Rs 35000 by taking mediclaim policies for your family. Here we are discussing the basics of the various options available:
  1. Post Office National Saving Certificates- Popularily known as NSCs, they are a very popular choice among the investors. Since they are backed by the government, they are one of the safest investment options. Here, your money stays invested for six years from the date of investment. With an interest rate of 8% (compounded half yearly), a Rs. 10,000 NSC would mature at Rs. 16,010 after six years. Here, the major beneficial factor is that the annual accumulated interest is also eligible for section 80C deduction of Rs. 1 lakh. They are available at every post office.

  2. Life Insurance Policies- Undoubtedly the most preffered choice. They are offerred by numerous companies. The biggest player being the Life Insurance Corporation of India (LIC). A number of foreign corporations have entered the life insurance sector in the form of joint ventures with Indian Counterparts. Many companies are also offering combo plans which divide your premium into life insurance and mediclaim benefits. Moreover, many insurance plans are so designed that they prove to be a good substitute to the regular investment plans (LICs Jeevan Aastha was one of them).

  3. Public Provident Fund (PPF)- A must have. You can invest upto Rs. 70000 in your PPF account each year. The interest of 8% is completely tax free. Moreover the security of funds is guaranteed by the government. PPFs are among the best options for capital building. However, it has some drawbacks. The funds can only be withdrawn after five years (the full time period of PPF account is 15 years, after which it has be renewed). Also you cannot have a PPF account in joint name (however you can appoint a nominee). A PPF account can be opened at any State Bank of India branch or a post office. It is also available with some other banks like Bank of India, Bank of Baroda and Central Bank of India.

  4. Mutual Funds- A Mutual Fund is a trust that pools the money collected from investors who share a common financial goal and is invested by the mutual fund company in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. They are a good option if you are not looking for fixed/assured returns. Among the various types of funds offerred by various companies any of them can be chosen as per ones preferences. However, owing to current recessionary trends and fluctuations in the share market, one has be to be careful while investing in mutual funds.

  5. Fixed Deposit Schemes- Banks have started the fixed deposit schemes that provide you the benefit under section 80C. However, they have a lock in period of 5 years and their interest rate is somewhat lower than the regular fixed deposits. When investing, be sure t ask for the specific tax saver fixed deposit.

  6. Infrastructure Bonds- Infrastructure Bonds are issued by public sector infrastructure development companies like Rural Electrification Corporation Limited, National Highways Authority of India. The money rasied is utilised for the development of Infrastructure. With a 3 year lock in period and low rate of return they are not among the preferable choices of any investor.

  7. Salary Retirals- The Provident Fund (PF), Group Provident Fund (GPF) amounts deducted from your salary are also eligible for the secion 80C Rs. 1 Lakh deduction limit. Only the employee's share is allowed as deduction. Employer's contributio is not allowed.

  8. House Loan Principal Repayment- The principal portion of the home loan repayment installment is also eligible for the deduction. The interest portion is allowed as a deduction from house property income. At the end of the year, get a certificate from your lending institution stating clearly the amount of principal and interest repaid during the year.

  9. Children's Tuition Fee- The tuition fee factor in your child's school fee is also allowed as the deduction.

Mediclaim Policies (Section 80D)

An amount upto Rs. 15000/- for mediclaim premium paid for yourself, spouse and children can be claimed as deduction from taxable income. Also an amount of Rs. 20,000/- is allowed for payment of mediclaim premiums for dependent parents above 65 years of age. Always remember - Do not pay mediclaim premiums in cash.

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5 comments:

  1. According to the market-research group Datamonitor, medical inflation is the reason for yearly increases of 8% in health insurance premiums. The steady progress in the development of new drugs, therapies and equipment used to diagnose medical conditions and the resulting costs are an obvious reason for this. This is understandable and everyone wants the latest in diagnostics and treatments. Equipment becomes obsolete with time and invariably the very words newer and improved mean a rise in cost.

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