I want to invest to save tax. Please advice on possible options.
-Baljeet
You can save taxes by investing up to Rs 1 lakh every year. Above that, you can further invest Rs 20,000 in infrastructure bonds and avail tax benefits under Section 80C. This way, you can invest Rs 1,20,000 of your money and not pay income tax on the same.
Now, on the first Rs 1 lakh that you can save, you can avail benefits on certain expenses as well. For example, you can deduct the tuition fees of your two children from your taxable income. There are other such deductable expenses as well. There are three broad investment avenues that you can make use of to save on taxes. One is fixed income investments, which give you a guaranteed income. PPF, NSC and bank fixed deposits are such avenues. The other option is the ULIP premiums that you pay. The third avenue is equity-oriented tax-saving funds. These funds invest all of their assets into equities, and have a 3-year lock-in period. This is the only tax-saving investment that invests all of its assets into equities. We believe that such tax-saving funds are an ideal way to save tax and profit from equities. Some tax-saving equity funds that you can invest in are HDFC Taxsaver and ICICI Prudential Tax Plan. These funds have performed well and have a proven history. Among the relatively new, but well-performing ELSS funds, you can choose from Religare Tax Plan and Taurus Taxshield. However, if you are completely risk-averse, then bank deposits or NSC would be ideal for you.
Apart from these, your employee provident fund also gives you tax benefits at guaranteed returns. Your annual deduction under it is also eligible for tax benefits.
This article was originally published on February 13, 2012.
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