Tax saving option in Section 80C

Some Tax Saving option in Section 80C

When we talk about tax planning, most common term flash in mind is Section 80C. The Section 80C offers various options to fulfill people’s different need. In Jan-March quarter most of the person rush for tax saving instrument and often make wrong decision in hurry. They don’t even realize that they have invested their money in those products which is really not suited them. The right time to make tax plan is the beginning of fiscal year (April-May).Today I am throwing some light on those products which are available in under section 80C.

Provident Fund: It is the very common and popular in service class people. As employer deduct the some portion of money for contribution in provident fund from employee’s salary. PF gives 8.5% per annum and is very secure in terms of safety. Employee can liquidate it at the time of retirement. However, partial withdrawal is also permitted with some condition. 

Public Provident Fund or PPF: It is very good option available with low risk and offer tax free return after maturity. It offer return market linked for current year it is 8.8%.The lock-in period is 15 year but partial withdrawal is possible after fifth year.

Bank Fix Deposit: The 5 year bank fix deposit is also available. Various bank offer return 8-9% this year (See earlier blog). The return is taxable as per one’s tax slab. The lock in period is 5 year. It is low risk product but keep in mind the post tax return also before investing in fix deposit.

National Saving Certificates or NSCs: It offer 8.5% return and is very safe investment. The lock in period of these instruments are 5 and 10 years. The person can choose any maturity 5 or 10 year based on their need.

Senior Citizen’s Saving Scheme: It offer 9.3 % return and added in taxable income. It is the most suitable option for senior citizens (above age 60 year) as it gives regular interest income in each quarter. It has no risk and very safe investment option. The lock-in period is 5 year.

Insurance Policies: It is long term product and lock in period depend on plan’s maturity. It has highest degree of safety but its average return around 6-7% only.

ULIP or Unit Linked Insurance Plan: The return is market linked as no fix return offer. Partial withdrawals possible. It is in the form of bundle which offer insurance, tax exemption and return also. The cost and charges is high compare with other products. The risk is depend on which option you have chosen.

ELSS or Equity Linked Saving Scheme: It is market linked product. There is no fix return. The lock in period for this product is 3 year. It has shortest lock-in period among all Section 80C options. It is high risky investment product.

NPS or National Pension Scheme: It is retirement goal oriented product. No withdrawal allowed before retirement. The return is market linked and it has very low expense ratio means low cost product.

Besides the above mentioned investment products which are in under section 80C, there are some expenses also eligible in under this section.

Home loan repayment: Principal portion of EMI is eligible for deduction till Rs 1,00,000 limit.

School Fees: Tuition fees of up to two children in a recognized educational institute for eligible for Section 80C

Home Purchase: During the purchase of home whatever stamp fee and registration fee you pay is also deductible from taxable income.

There is also other option available for tax deduction other than Section 80C which we will discuss later. If you want more clearity on these products pleas ask through email

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com
www.artofinvest.com

What is ELSS...?

What is ELSS ?

ELSS stands for Equity Linked Saving Schemes. It is very good option for tax saving and better return. It has better potential returns and comes with 3 year lock-in period which is lower than other available tax saving instrument under section 80(C).

ELSS schemes are mutual funds which are professionally managed and invest major part of corpus in equity which have potential to beat inflation.

In India, equity market has been negative to range bound for more than 5 years. It make sense to invest in ELSS due to the expected positive development in domestic market within next couple of years.

Like other mutual funds it also comes with two options growth and dividend. You can choose any one of these. Growth plans gives you a chance for compounded growth with capital appreciation and you can get it only minimum 3 year lock-in period. Dividend plan provides some income in your hand during the lock-in period which is tax free in investor’s hands.

After 3 year lock-in period investor can reinvest again in ELSS schemes and claim again section 80(C) benefit. By this method you can less the burden on your pocket for tax saving.

Apart from ELSS many other sections and investment instruments available which we will discuss later.

For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

How-to-pick-a-tax-saving-fund

How to pick a Tax saving fund (ELSS)

http://www.morningstar.in/posts/21311/how-to-pick-a-tax-saving-fund.aspx

The deadline is fast approaching. If you, as a taxpayer, have still not done your tax planning, you really don't have much time left. But be of good cheer. We shall be carrying a series of articles to help you make up your mind.

Right now, we will specifically look at equity linked savings schemes, or ELSS, which are diversified equity funds that offer a tax benefit under Section 80C. It is also the only tax-saving instrument that offers the lowest lock-in period of just 3 years.

As with any fund investment, when narrowing down on a pick, an error investors are prone to make is opting for the most recent chart topper. Despite the bold disclaimers about past performance not necessarily being sustained in the future, investors have a hard time resisting that lure. And when that is employed as a sole parameter, it’s not uncommon for disillusionment to set in rapidly.

A very in-your-face example would be Taurus Tax Shield. In 2007, it was the best performer in its category with a return of 112%, way ahead of the average 57%. Investors who went for it simply because of the great performance in 2007 would have been a disappointed lot. Barring 2009, the fund has underperformed the category average every other year. But had they done their homework, they would have seen that the fund was the worst performer in its category in 2006.

When looking at past performance, pay a lot of attention to consistency. Don’t get swayed by a sporadic burst in numbers. For instance, HSBC Tax Saver put its best foot forward in 2012. But a look at the performance prior to that year is far from impressive. Ditto with its 2013 returns. On the other hand, Axis Long Term Equity has been fairly consistent. It has been the best performer in its category in 2010, 2011 and 2013. Even when it missed this coveted spot in 2012, its performance was better than that of the category average.

Here are a few tax-saving funds, or equity linked saving schemes, that Morningstar analysts have looked at.

Franklin India Taxshield

This one boasts of a Gold rating. Fund manager Anand Radhakrishnan adopts a bottom-up investment style with a bias for large-cap stocks. His contrarian bent results in the portfolio standing out when compared to that of the typical peer. Click here for a detailed analysis.

HDFC TaxSaver

Vinay Kulkarni aims to derisk the portfolio by investing in uncorrelated sectors of the economy. Though the fund plies a multi-cap approach, he pays more attention to smaller caps than the typical category peer. His holdings tend to remain fairly consistent over long time periods, which is borne out by the fund's low turnover ratio. Our analyst has given this fund a Silver rating. Click here for a detailed analysis.

DSP BlackRock Tax Saver

The fund’s sector weights can deviate by a maximum of 15% (absolute) as compared with the benchmark CNX 500’s weights, with no particular bias to any market cap. To prevent concentration risk in a particular sector or market cap, Apoorva Shah ensures that individual stocks usually account for less than 5% of the fund’s assets, and the top 10 stocks account for roughly 35%, compared with 50% for a typical peer. The fund currently holds a Bronze rating. Click here for a detailed analysis.

The following 3 funds currently hold a Neutral rating.

ICICI Prudential Tax Plan

Chintan Haria is valuation conscious and uses a combination of top-down and bottom-up approaches to create a multi-cap portfolio. He maintains a fairly diversified portfolio and aggressively trades in the large-cap space. Click here for a detailed analysis.

Reliance Tax Saver

Ashwani Kumar typically scouts for companies with strong growth prospects that he believes are trading at a discount to their intrinsic value. He takes sizeable positions in smaller caps in the quest to deliver superior returns. Our analyst is of the view that the combination of substantial small/mid-cap exposure and big stock/sector bets make the fund an apt supporting player in a tax-saving portfolio. Click here for  a detailed analysis.

SBI Magnum Taxgain Scheme 93

Until 2011, manager Jayesh Shroff freely took active positions versus the benchmark index S&P BSE 100 as per his convictions. Since 2011, Shroff has been plying a benchmark-aligned growth-oriented approach in place of the erstwhile benchmark-agnostic process. As per the new strategy, the portfolio’s sector weights are loosely aligned with those of the benchmark. He focusses on growth stocks and largely follows a buy-and-hold approach. Click here for a detailed analysis.

Some Tax Saving Instruments

Some Tax Saving Options under section 80C & 80D

The tax season has already begun. With the new year many people has started to make the tax plan and want the optimal use of available tax option for tax saving. As per my personal view, tax planning should be start more early after the beginning of financial year. At the last moment, we often make wrong decision in hurry of tax saving. Here we are going to explore the suitable options under most popular income tax section 80(C) and section 80(D).

Section 80C allows tax exemption to everyone irrespective of under any income group on certain spending and investment. It means if you invest or spend in products under section 80C your income reduce upto Rs 1 lakh and you have not to pay any tax on this Rs. 1Lakh. If you are in 10%, 20% or 30% tax bracket you clearly save Rs 10,000 , Rs. 20,000 and 30,000 respectively.

If you are conservative investor then debt instruments are suitable for you and if you are moderate or aggressive investor then you should invest in equity category products. First, we are going to discuss some equity option available for tax saving and decent return.

Equity instrument for Tax saving

Equity Linked Saving Scheme (ELSS): It is diversified equity mutual fund which invest majority of corpus in equities across all type of companies like bluechip and value stocks. It is the only more popular instrument which is available for tax saving in equity category. It has 3 year locked in period which means the amount you have invested in these types of schemes cannot be withdraw before 3 year completion.

The return from ELSS is total tax free in the hand of investors. ELSS category has generated 22% CAGR average return over last 10 years.

It is good for those who have vision for long term corpus building and tax savings. By investing in ELSS schemes you can save tax and get the benefit of equity market both.

Debt Instruments for Tax saving

Debt instrument promise the fix return but of course the return is often less compare with equity return in long term. There are many options available in this category.

Public Provident Fund (PPF): It is the best instrument available in debt category. The return on this instrument announced every year. For FY 2013-14 the return is 8.70%. It has lock in period of 15 years and the return is total tax free so it is safe instrument for higher tax bracket investor.

National Saving Certificate (NSC): It is available for 5 year and 10 year period. The return for 5 year NSC is 8.60% compounded half yearly and for 10 year NSC the return is 8.80% compounded half yearly. The tax is applicable on return as per your tax slab. It is also the safe option for conservative investors who do not fall in any tax slab.

5 year bank fix deposit: At present banks are offering 9% compounded quarterly. The return is taxable here also as per your tax slab. It is also for the suited those who are not in any tax bracket. It also offer safe and fix return.

Life Insurance Premium: In this category ULIP and endowment policy often recommended by agents or advisor as it offer lucrative commissions to the agents. The main difference between ULIP and endowment policy is that in endowment policy investment decision taken by the company which often invest in debt product and in ULIP the investment decision taken by investor himself. These types of plans offer insurance and investment both. Historical returns of endowment policies are between merely 5% to 6%. ULIP comes with high inbuilt cost which makes it less attractive than other investment instruments.

Mediclaim Policies Premium:  Apart from above mentioned you can claim some tax exemption for your medical insurance policy cover under section 80D. It allows deduction up to Rs 15,000 for premium paid to purchase health insurance cover for yourself, wife and children. You can also claim more Rs 20,000 apart from this Rs 15,000 if you purchase medical cover for your dependent parents

In today’s life in view of increasing medical cost day by day, I personally advise to all of you to cover yourself and your parents with medical cover. It would be very useful for your medical emergency and tax saving.

Once again my best wish to all of you for good financial health and physical health on the eve one year 2014. For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com