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Thursday, March 25, 2010

Investment for Saving Tax

We love Money when it flows into our account. But when it comes to paying taxes we are very much hesitated and make lots of investment plans to avail tax benefits.

It's that time of the year when everyone starts thinking about taxes. Or rather, what to do to minimize them.This time around, the tax payer has the going a little more easy.

Investing options are :

Infrastructure bonds

Investment in infrastructure bonds falls under the overall Section 80C limit of Rs 1,00,000 with no separate cap. So you have the choice of bypassing it for another investment.
These bonds will offer a return of around 5.5% to 6% per annum with a lock-in period from three to seven years. The returns are poor and at this stage in your life, there is no need to even consider such an avenue.

Equity Linked Saving Schemes

ELSS are diversified equity mutual funds with a tax benefit under Section 80C. Diversified equity mutual funds are those that invest in the shares of various companies of various sectors.

Since we are young, we have time to play with the stock market. Moreover, stocks should be part of our investments because not only do they add that extra zing to the portfolio, but they also give the best returns over the long term.

Under Section 80C, there is no cap on this investment. If you choose, you can invest right up to Rs 1,00,000 in this investment option.Investments in ELSS have to stay locked in for a period of at least three years. And, the returns can be great.

Public Provident Fund

PPF is a great long-term investment strategy.Employers usually provide an Employee Provident Fund for their employees.A percentage of the salary is deducted as Provident Fund and, generally, the employer contributes as much as the employee contributes into the fund.

Your contribution to the provident fund is eligible for deduction under Section 80C.The PPF is a government run fund where the entire contribution is voluntarily made by the individual himself.

House Rent Allowance

If a portion of your salary is marked as House Rent Allowance or HRA and you are paying rent, then submit rent receipts. This is the biggest saving from the tax burden, The total amount of rent paid or the amount earmarked as House Rent Allowance in your payslip, whichever is less, will be deducted from your gross income from salary. However, it should not be more than 50 percent of salary for those living in metro cities or 40 percent of salary for others. You will have to submit a lease document and your rent receipts should have a revenue stamp.

Life Insurance Plan as tax saving

All life insurance plans gives you the tax benefit so you should always go for plan which is suitable to your life and your financial planning.You need not buy every year new policy. If you think that you have already invested enough in life insurance plan but want to invest again then you should go for ULIP plans. Payout from life insurance policy is tax free.

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