February 24, 2011 / 12:29 IST
Every tax payer knows that he would be paying a certain amount of tax during the year. However, despite knowing it, not many plan for it. No wonder, there is invariably a scramble to make last minute tax savings investments rather than following a disciplined approach of investing throughout the year. As we have entered into the last quarter of the current financial year, many tax payers would be making tax savings investment during this period. Tax payers would do well to be careful while deciding where to invest or else they could end up taking impulsive decisions.
There are many investment options under section 80C of the Income tax Act, 1961 that enable tax payers to reduce their taxable income upto a maximum of Rs 1 lakh. Some of the prominent options are contributions to Employees Provident Fund (EPF), Public Provident Fund (PPF), National Savings Certificate (NSC), and Bank Fixed Deposit for tenure of 5 years, Equity Linked Savings Schemes (ELSS), Life Insurance Premium and Principal component of the EMI for housing loan. Besides, an additional Rs 20,000 investment in Infrastructure bonds is allowed as deduction under section 80CCF. Before deciding on how much to invest in different options, one must consider compulsory savings like EPF and prior commitment towards LIC premiums. Another important point to know is that each one of the tax savings options has a mandatory lock-in. However, the period varies from option to option. For taxpayers who do not mind conservative returns to ensure safety of the principal amount, investment in PPF, Bank FDs, NSCs can be the likely options. Amongst all these safer options, PPF scores over others as one that not only earns a fixed return of 8% but also one is not liable to pay any tax on it. However, there are limitations too. Firstly, it has a maturity period of 15 years. Secondly, there is a cap on the maximum amount that one can invest in it i.e. Rs 70,000 every year. However, for those who would like to get positive real rate of returns i.e. return minus inflation over time and wouldn
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