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Investment & Tax Saving – Make your Hard earned money earn for you!!

May 30, 2013 in Knowledge Cell, Legal

All of us look back at the year gone by, sigh at the mistakes made and swear not to repeat them in the new year. In India, the financial year ends in March, and the new financial year starts with April, its time we make some “Financial resolutions” for the coming year so that we do not repeat the old mistakes and make better decisions with regard to investment and tax saving. Savings of tax is an effective measure to certify that people save some of their tax liability.

Some Quick Saving Tips

Don’t hold Too Many Credit Cards

I am not saying that you should stop having a credit card. But use it for emergency purposes like booking a train / flight ticket & online buying where you are required to pay by a card. Also, limit the number of credit cards you possess to two, so that you are not caught in a debt trap. Having multiple cards and spending with all of them, you tend to lose track of the payment dates and would be required to pay heavy finance charges and late fees.

Spend what is left after Saving

Whatever you earn, if you decide to save after spending for the entire month, chances are, you may be left with peanuts. Rather, decide on an amount you would be saving every month so that it automatically control your spends.
You should save at least 26% of your annual earnings. If you are not saving this much, it is time you revisit your spends and cut down on unnecessary things. This will ensure not only a comfortable retirement planning but also give you some back-up in case of an unfortunate situation.

Don’t rush for March

Most of us have a habit of procrastinating investments, insurance, tax savings etc. for the last month of financial year i.e. March. What we actually end up with, is buying a wrong product (generally ULIP). My personal opinion is to keep insurance and investments as two separate avenues to get good life risk cover and get good returns. Best idea is to start making your investments in April itself.

Be an alert investor

We have some basic responsibilities of our own money. Few of them include, keeping a track of the bank account statements, credit card statements, mutual fund account statements, insurance policies, income tax returns etc. A regular review of each would keep us updated about the current position and would prompt us to take a timely action in case of something not being in place. Paying charges such as late payment charges on credit cards or late charges on insurance policies or interest on tax not paid on time would be a sheer insult to our hard earned money.

Tax Saving

Here I have recommended some investment options which can help you save taxes. Tax saving is a part of tax planning. Tax planning is different from tax avoidance and is legal. You should plan your taxes to become affluent over a period of time.

National Saving Certificate (NSC)

NSC refers to National Savings Certificate where you can invest an amount staring form Rs.100 and enjoy the same interest rate of 8.60%. The exemption applies to 100% in such context and moreover, NSC is the best option to save tax. NSC is the popular tax scheme among tax payers.

Public Provident Fund (PPF)

The PPF is one of the most attractive ways where you can reduce your tax liability. This option is open for all the employees who belong to the public or the private sector. A minimum of Rs.500/- to a maximum of Rs. 1,00, 000 can be invested to PPF. You are eligible for an interest rate of 8.80% on these investments & interest amount is tax free. For this purpose, you can go to any public sector bank or post office and avail the option.

Life Insurance Premium (LIP)

Life Insurance serves dual benefit  as it not only acts as a cushion for people at the time of uncertain sad events but also helps them to save a regular amount by way of tax deductions. You can make investment in LIC policies either on your own life or on your dependents such as children and wife to avail this benefit.

Mutual Funds

Mutual Funds are right way to invest into because it provides affordability, liquidity, tax benefits, professional management and most importantly it is a simpler and cheaper option for wealth creation.

Bank Deposits (Fixed Deposit)

Government had announced Tax benefits to Bank Term Deposits which are of over 5 years tenure.
Most of the above mentioned savings directly fall under the section 80C, where the maximum permissible limit is up to Rs.1,00,000 and henceforth, the total amount as a collective of all the available schemes would be taken into consideration. It is different from general fixed deposits and requires depositor’s certain sacrifices. Depositor needs to mention the word “Tax Saver Fixed Deposit” at the time of depositing the amount. Bank Official puts a stamp on FD receipts which ensures 5 year lock-in and depositor cannot avail facilities such as premature withdrawal.
One can also use Investments made towards payment of health insurance premiums to qualify for a tax deduction under section 80D up to Rs.15,000/-.
Also individuals can select other options such as 80DD, 80G, 80E etc to save some part of tax. Tax amount saved can be maximized by choosing the tax saving options efficiently which is only possible after knowing each of the options completely. Thus anyone who is looking forward to save tax in financial year 2013-14 should choose the most suitable option from the list of options mentioned above and invest in the best suited one.

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