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Feb 06, 2013, 05.48 PM IST | Source: Moneycontrol.com

Investment for tax: Avoid last minute scramble

Planning for the future and investing accordingly will do investors a lot of good in the long run instead of impulsively investing in tax-saving schemes available in the market

Planning for the future and investing accordingly will do investors a lot of good in the long run instead of impulsively investing in tax-saving schemes available in the market

It is that time of the year when people rush to invest in tax-saving instruments as most salaried individuals are expected to submit investment proof by December or January. Owing to the delay, many end up investing in anything that comes by in order to save tax. Tax saving should be incidental to the overall investment objective instead of becoming a goal in itself. A majority of investors rush to auditors or financial planners seeking direction to invest up to Rs 1 lakh, as it qualifies for tax exemption under section 80C of the Income-tax Act. Although there are several avenues like Public Provident Fund (PPF) and National Saving Schemes (NSC), among others to save tax, investors should plan their future and invest accordingly instead of blindly putting their money in what they like.

For example, many invest in insurance schemes just to save tax. But the question that needs to be asked is whether it makes any sense to invest in these schemes if they cannot provide diversification to investors’ portfolio at all. It is always advisable to do tax planning in advance because a wise investment will not only lessen the tax burden but will also give good returns. Here we bring to you a few products that can save tax for investors and make them financially independent as well.

Public Provident Fund (PPF): Public Provident Fund is one of the most popular investment vehicles among investors as it is exempt-exempt-exempt (EEE) and has caught the fancy of many individuals. This scheme, introduced by the Central government in 1968, allows the general public to make contributions to the fund and at the same time avail tax exemptions under provisions of the Income-tax Act. It is completely risk-free in nature as it is backed by the Government of India. All individuals can open a PPF account. They can even open an account on behalf of a minor. A person cannot open more than one account in his or her name or even have a joint account. The minimum amount of investment in a PPF account is Rs 500 per annum and the maximum amount of investment in a year is Rs 1, 00,000. In case of a minor’s account, the investment in the minor’s and guardian’s account together cannot exceed Rs 1,00,000 per annum. Deposits can be made in a maximum of 12 instalments in a year.

The PPF account comes with a lock-in period of 15 years, which makes it a long-term investment option. However, during the tenure of the account, an investor can take loans or withdraw amounts subject to certain conditions. On completion of 15 years, investors can extend the tenure of the account in a block of five years, indefinitely. The current rate for FY 2012-13 stands at 8.8 % per annum. The limits on investment, tax exemptions and rate of interest remain the same even during the extension period.

Source: Nirmal Bang's Beyond Market

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