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
