This is indeed a bad idea – waiting till the end of the financial year to think about tax. But don’t you worry – you are in the 99% of the population.
First, this year there is a new section 80CCF, under which investments up to Rs.20,000 can be claimed for tax exemption. This is over the usual Rs.1 lakh exemption under 80C. Investments should be in approved infrastructure bonds, like IFCI and L&T. If you have an online trading account, these usually come in the IPO/Bond section, and you can invest in these just like an IPO. The bonds are held in demat form. If you haven’t yet invested, it is ok – just watch out (or subscribe to us), the companies would bring out another series in a few days.
Next comes the usual 80C section.
Tax-Saving Bank FDs – these have now turned real good, with interest rates at around 8.5%. They mature in 5 years, and the interest is taxable. The simplicity of the process is a boon though.
NSC – the National Savings Certificate offers around 8.17% and matures in 6 years. Since the interest is taxable here also, the Bank FD turns out to be better with lower maturity period and higher interest.
PPF – the good old Public Provident Fund has a rather long maturity period of 15 years, but its rock-solid safety (Government of India!) and reasonable return rate of 8% would hearten conservative investors. What’s more – the entire interest is tax-free. Younger ones should, however, have a look at NPS below. PPFs can be opened at major Post Offices.
ELSS Mutual Funds – Equity-Linked Savings Scheme Mutual Funds (huh!) are for those who have the stomach to take on the stock market. If you are horrified by the likes of Raja/Raju, stay away from this. For those who take it as part of life, well, you don’t need our advice. All gains (and pains) are tax-free.
ULIP – Unit-Linked Insurance Plans have been created for insurance agents, not investors. STAY AWAY AT ALL COSTS.
NPS – the National Pension Scheme is a new entrant. It is actually a very good product for those not fortunate to have government pensions at retirement. It invests in a combination of safe government bonds and stocks, the ratio being chosen either automatically (so risk is very, very low near maturity), or one you specifically allocate. Though it invests in stock markets, it has very low annual charges. You need to invest till you are 60, after which, you receive one-third as tax-free income. The rest need to be invested with any insurer, so you OR your spouse (after you are *) gets a monthly pension for the rest of your lives. Contact your bank to open one, or open online with ICICIDirect. Unless you are absolutely sure you AND your spouse won’t last until 60, INVEST IN THIS ABSOLUTELY.
(Technopark Living will carry a detailed report on NPS shortly)
We have listed only major investment avenues, there exists other options like EPF, children’s tuition fees, housing loan interest, life insurance premiums etc, which also come under 80C. Only an amount up to Rs.1,00,000 will be eligible for rebate. Next year, remember to start early!