I have just started working and earn Rs 20,000 a month. In what way should I invest in mutual funds and PPF so that I can reduce my tax liability?
It is encouraging to note your concern to save tax so early on in life. Investments up to Rs 1 lakh across select financial instruments qualify for tax deductions under Section 80C. Both PPF and tax planning funds fall within this product category besides insurance and others. PPF is a 15-year fixed return investment with Rs 70,000 investment cap in each financial year compared to the equity-oriented tax planning funds in which investments can go up to Rs 1 lakh in a financial year. You have six more months to invest in these funds in this financial year and can consider investing in Canara Robeco Equity Tax Saver or Religare Tax plan which are both highly rated with a proven track record and performance history. This may also be the last year when investments in these funds will qualify for tax deductions as these do not fall within the set of financial products in which investments will qualify for tax deductions in the new tax regime set to come into effect from April 1, 2011.