March and money problem seem to always be connected mainly because you have to pay your tax this month. If you are careful enough to plan in advance you would be able to stay happy in this month too. For this you have to make planned investments taking into account the various sections of the income tax act.
There are many ways that would help you in saving taxes, for this you have to first make the right plan, for this make a list of your income sources and the income you get from them. Then add all these up, you would get your gross pay. Now, you would be taxed for any amount that is more than 2 lakhs per year.
Suppose you are a government servant with Rs 35000 monthly pay, then your gross pay comes to Rs 4,20000. So now you would have to pay tax for the extra Rs 2,20000. However you can reduce this amount it you plan investments beforehand.
There are four sections under the income tax act which you would be able to invest in order to get advantage of tax saving, they are 80C, 80CCF, 80D and 80E.
This is the most common and the easiest investment option that attracts many people. The only problem you face here is that the upper limit of investing is Rs 1 Lakh. Above 1 Lakh again is taxable so carefully choose options to invest.
Under section 80C you have three types of investment options, they are
- Fixed Income Investments
- Market Linked Investments
- Insurance Investments
Fixed Income Investments
In fixed income options you would come across
Public Provident Fund ? PPF comes under Exempted-exempted-exempted or EEE category, that is, you are not taxed on the investment, interest and return. You can save up to Rs 70,000 per year in this scheme. So in your one lakh, you can take up PPF for an amount of 70,000. The compounded interest is high and is about 8.5% per annum.
Employee Provident Fund ? This again is similar to PPF, and belongs to EEE category. The limit here is higher than PPF, you can invest up to 1 lakh per year in this scheme. The interest again is higher than PPF and is 9.5% per annum.
The above two are long term investments with a time period of 15 years and during this period you might not be able to have liquid money in your hands. Well as we are talking about investment, this is the best investment I would recommend.
National Savings Certificate ? this old post office practice is still live and for those who have forgotten here is a reminder. NSC is a six year savings programme that is available with the post office. You can buy a certificate of 500 to any amount you would like.
Since the time tie is only 6 years you would be able to get liquid money sooner and double the amount you had deposited at 8% interest. The only problem here is that the amount which you get on maturity is taxable.
All fixed deposits do not save tax; there are special fixed deposits that are called tax saving fixed deposits that are available with many banks in India. These fixed deposits give you an interest of 8 to 9%. The advantage here is the lesser lock-in period, which is five years. You would not be taxed on the interest gained and is also very safe method of investment.
Senior Citizen Saving Scheme
If you are a person who is above 60 years you have a simple investment scheme that is great in terms of saving tax, it is the Senior Citizen Saving Scheme. This is a secure form of investment that would give you an interest of 8% per annum.
All the above mentioned are the fixed income group, you still have to know about the Market Linked Investments and Insurance Investments in this 80 C section. We shall discuss this in detail soon.