Why wait, Start investing NOW...

By First Posted: Feb 16, 2007 Fri 11:30 AM Updated: Dec 7, 2007 Fri 12:25 AM

It is that time of the year again, when we receive the mandatory email from accounts department reminding us of our income tax obligation for the year. Luckily for us, help is at hand, and there isnt any need to fret. This article gives a list of options that we can choose from to make our tax burden lighter. First, lets understand how the Government is going to tax us.

Taxable income slab (Rs.) Rate (%)
1,35,000 (for women)
1,85,000 (for senior citizens) NIL
1,00,001 - 1,50,000 10%
1,50,001 - 2,50,000 20%
2,50,001 upwards 30%
10,00,000 upwards 30%*
A surcharge of 10% on income tax is levied where taxable income exceeds Rs. 1 million which makes it effective 33% including surcharge

Finance Bill 2006-07 offers a deduction from income of up to Rs 1 lakh on specified investments, expenses or payments like notified bank deposits with a minimum period of five years, life insurance premiums, Employees Provident Fund (EPF), public provident fund (PPF), repayment of principal amounts on housing loans, payment of tuition fees, national savings certificate (NSC) and equity-linked savings schemes.

Life Insurance The premium that one pays towards a life insurance policy is eligible for a tax deduction up to Rs 1 lakh. Life Insurance can be a form of investment, tax saving instrument and security cover for your family.

Health Insurance Medical insurance premium of up to Rs 10,000 is tax-deductible, with an additional deduction of up to Rs 5,000, where the premium is paid by a senior citizen (65 years or older).

Equity-Linked Savings Schemes (ELSS) Also knows as Tax Plans from Mutual Funds, these are eligible for deduction. Investment in these schemes can get you gains from the benefits of equity market returns if you have an appetite for risk, and if the market does well. Do note that like all tax savings options, these plans have a lock-in period (of three years).

Bank deposits The term deposits in a scheduled bank for a minimum period of five years can get you tax advantage in addition to giving you a fixed and assured return (around eight per cent). There is a one-time investment and there is no commitment to invest more in future. It is noteworthy that the entire interest income from any such deposits would be taxable.

EPF This is a forced saving for an employee and helps him save for retirement. Twelve per cent of your salary is deducted every month and put into a kitty maintained either by the government or your companys trust. The contribution currently earns a tax-free return of 8.5 per cent.

PPF This is a self-directed investment option. It is essentially a 15-year investment that carries a tax-free interest rate of eight per cent as of now. The rate is subject to change. Investments of Rs 500-70,000 qualify for a tax rebate.

Home in on home loans The interest payable on home loans taken on or after 1 April 1999 is tax-deductible up to Rs 1.5 lakh a year. If you factor in the tax advantages, the effective interest rate works out to 6.3 per cent for an eight per cent loanagainst which you get to build a long-term asset.

Childrens fees Parents can also claim a deduction for tuition fees of their childrenup to Rs 12,000 per childfor a maximum of two children. This means that parents with two children can claim a deduction of Rs 24,000.

National Savings Certificates For those who are less inclined to take risk, theres the National Savings Certificate. This government-backed security is available at post offices and comes with an interest rate of eight per cent, compounded half-yearly as of now. The interest is entirely taxable and is right for those in lower tax slabs with an investment horizon of around six years.

So, what are you waiting for? Start investingNOW!!!

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