Jan 22, 2014, 12.43 PM | Source: Moneycontrol.com
Most of the salaried employees might have received a reminder from the HR for submission of proofs of tax saving investments.
Are you worried that you have not utilized all the tax saving provisions? Are you staring at a huge tax deduction from March salary?
If you have already made the provisions and investments, then it’s no big deal for you. But in case you are one of the late movers, time has come to make fast moves.
Broadly, there are three ways to ensure that you pay optimal tax; Claiming tax free income, incidental actions that bring tax benefits and finally Investing/saving for tax benefits
Let us explore them in detail;
Claiming tax free income:
All you need to do here is submit documents to the HR and relax. Your tax outflow will automatically get managed. These are applicable for salary components that are tax free in nature. Here is the list of items:
Investing/saving for tax benefits
Here is where you need to plan and act for managing your tax outgo. Broadly here you deal with the provisions of Sec 80C/Sec 80 CCC, 80G and 80 CCG. You are primarily expected to invest in any of the products listed in these sections and in return you get the benefit of paying lesser tax. But there is an upper limit to this. For both section 80C and section 80CCC the upper limit collectively is Rs 1,00,000.
Section 80C/ 80CCC:
In case the total amount claimed under 80C from the items that are listed in the above incidental category is totaling to Rs 1,00,000 then just chill. You have nothing much to do under these sections. But if total is less than Rs 1,00,000 then you can make some investments to claim tax benefits.
The products that qualify for the same are as follows:
On closely looking at the products you will notice that all of them are long-term in nature. As it is a long-term investment, we need to take into consideration the negative impact of inflation while deciding on the product. Inflation robs the value of money as time passes. What a Rs 500 note can buy today cannot buy after say 5 years. Probably you need to have a Rs 1000 note! Hence whenever you make investments that are long-term in nature, the returns you earn necessarily should beat inflation.
Only growth assets have the power to beat inflation in the long run. Equities, equity mutual funds, gold and real estate have the power to beat inflation in the long run. Though they are riskier by nature, in the long run it delivers the best value. Income assets like fixed deposits, bonds, traditional investment-cum insurance policies, etc gives returns less than inflation.
Arranging the section 80C products as per the asset class:
• Public provident fund
• Bank fixed deposits (the 5 yr thing)
• National Savings Certificate (NSC)
• Pension Plan
• Mutual fund-ELSS
It is now quite obvious that young and middle aged people should look at growth assets only. ELSS wins hands down over ULIPs since it has far lower costs and charges loaded onto it. This makes it one of the best tax saving instruments available.
What is ELSS?
An equity linked savings scheme (ELSS) is very similar to a diversified fund - it invests in the broad Indian equity market. It has no stated preference for sectors or themes – it chooses stocks based on the fund manager’s research and hypotheses. An ELSS has a three-year lock-in period.
Here’s how to choose (the rule of three):
A few organizations like the Prime Minister’s Disaster Fund enjoy 100% deduction – which means the entire donation paid is deductible from your salary. However, most other donations including several religious organizations enjoy only a 50% deduction. If you pay Rs. 1,000 to such an organization, you can claim Rs. 500 as benefit.
This is the newly announced rebate from the government called Rajiv Gandhi Equity Savings Scheme (RGESS). Features are
Recap- here is the check list of documents you need to submit to your HR