How to Invest in Various Tax Schemes

Investing in tax saving schemes should start from the beginning of the year itself instead of postponing the activity to the year end. There are many tax saving options available to the investors. Proper planning should be done by considering all available options and the right decision is to be taken. For better utilization of the available schemes, investors can seek the help of tax consultancy firms by paying a nominal fee. A brief description of the available tax saving options is given below for better utilization.

Section 80C

Under section 80C of Income-Tax Act, total admissible deduction for tax saving schemes is Rs. 1 lakh per annum. The following schemes are covered under this section.

• EPF: Employee Provident Fund deducted from salaries of the employee is tax exempted. It is deducted at 12% of the basic salary and an equal amount of contribution is made by the employer to the account. It is a good scheme for salaried class. The employee has an option to contribute more than 12% also subject to the maximum limit of Rs.1 lakh. Interest earned on this amount is tax free.
• PPF: Public Provident Fund is tax exempted up to a ceiling of Rs. 70,000 contribution per year. This is for people not covered by EPF scheme. This fetches an interest rate of 8% which is lower than EPF. Interest earned is tax free. But funds are locked for 15 years in this scheme.
• NSC: Amount invested in National Saving certificates is also tax free. But interest earned under this scheme is taxable at maturity.
• Fixed Deposits: Bank Fixed Deposit with tax saving schemes is also exempted under this section subject to the total exemption of Rs.1 lakh. But interest earned is taxable at maturity.
• Senior Citizen Saving Schemes: These options are available for 60 years and above old or to those voluntarily retired after 55 years. But interest is taxable.
• Equity Linked Saving Schemes: These schemes known as ELSS are market related investments for not less than 3 year period and are covered for tax savings. These investments are popular as they reap good returns. But interest is taxable.
• Unit Linked Insurance Plans: ULIP is also market related and good as it offers double benefits of insurance cover and equity investment benefits. Interest is taxable.

In addition to above options, Section 80C includes the tuition fees paid for children, LIC premiums and Home Loan installment payments also under the Rs.1lakh deduction admissible limit.

Section 80CCF

Introduced in Finance Bill 2010-11, another Rs.20,000 tax deduction benefits is allowed on investments made in infrastructure bonds of some notified organizations for a minimum period of 5 years. This is in addition to the normal limit of Rs.1lakh under section 80 C.

Section 80D

Under this section, health insurance premiums paid up to Rs.15, 000 for self and Rs.15, 000 for parents (Rs.20, 000 in case of senior citizens) is exempted from tax.

Section 80E

The entire interest paid on educational loans for self, spouse and children is exempted from tax.

Section 24

Under this section, tax benefits are allowed up to Rs.1, 50,000 on all interest payments.

One needs to weigh the pros and cons of each investment and have a careful comparison, before selecting the investment option. If you are a new tax payer then you can take advise from income tax consultants. They will provide you an easy and profitable way in which you can save your tax as well as some handsome investments also for a better and worthy future.