Time for Tax Planning

It is now the time of the year when one should start the tax planning process. With four months in hand, you have sufficient time to properly plan out your needs. Of particular relevance to tax payers are the different options provided under Section 80C of the Income Tax Act. The section contains various instruments which can be invested in by the taxpayer in order to save on tax.


However, it is to be noted that there are certain conditions and limits subject to which the investments can be made.

Further, the income form these instruments my further be or not be taxable. Accordingly, the choice would be different for different tax payers. Evaluate the various governing factors before taking a decision.

DO not choose the instruments blindly


While doing the tax planning exercise, it is important to note that one does not choose the instruments blindly. One should also keep in mind factors like rate of return, lock in period, taxability of the income earned on the instruments, flexibility of withdrawal in case of need, tenure, inflation rate and so on.

In some cases, one may save on tax in present terms, but in the long term, may erode capital in terms of inflation. In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act.

Investments made under such schemes come under section 80C. Under this section, one can invest a maximum of Rs l lakh. In case one is in the highest tax bracket of 30%, you save a tax of Rs 30,000. Click NEXT to know the various investment options under this section.Welcome to Indian Share MarketYour Desire to EarnResearched Stocks Free Technical Charts Readers Our Target Demat A/C Opening Contact us (Posted date - 08 Dec 2010)Home page Get Free Advice Useful Sites Free Subscription Public

Provident Fund, Provident Fund and Voluntary Provident Fund

An account with a nationalized bank or post office offers a tax-free interest of 8% and the maturity period is 15 years. The minimum contribution is Rs 500 and the maximum is Rs 70,000. The interest is tax free.

Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments.

You can also contribute additional amounts through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free.

Life insurance premium


Any amount that you pay towards life insurance premium for yourself, your spouse or your children can be included in section 80C deduction. If you are paying premium for more than one insurance policy, all the premiums can be included.

Besides this, investments in unit-linked insurance plans (ULIPs) that offer life insurance with benefits of equity investments are also eligible for deduction.

Five-year bank fixed deposit, National Savings Certificate


Tax-saving fixed deposits (FDs) of scheduled banks with a tenure of five years are also entitled for section 80C deduction.

These are six-year small savings instrument, where the rate of interest is 8%, compounded half-yearly. The interest accrued every year is also deemed to be reinvested and thus eligible for section 80C deduction.

Equity-linked savings scheme, Home loan principal repayment

Mutual funds offer you specially-created tax saving funds called ELSS. These schemes invest your money in equities and hence, return is not guaranteed. Money invested is locked for a period of three years.

The principal portion of the EMI qualifies for deduction under Section 80C. Stamp duty and registration charges The amount you pay as stamp duty when you buy a house and the amount you pay for registration of the house can be claimed as deduction under section 80C. However, this can be done only in the year of purchase of the house. Children’s education expenses

These can be claimed as deductions under Section 80C. One would need to keep the receipts to claim the same.

Infrastructure bonds

In addition to the Rs 1 lakh limit, one can also claim an additional deduction of Rs 20,000 by investing in infrastructure bonds issued by specified financial institutions.

The interest earned on these bonds is subject to tax.