Tax Saving Using One time Investment Plan

Its time for financial year end and all are seriously looking for investments to save tax. As per income tax policy, we have a exemption for 1 lakh investment under 80C. What all this 80C contains is a question which many ask me. Also they want to know the best plan to invest in, another group of friends ask for plans which are single time payment, because they do not want to commit to certain amount every year :) 

First  and foremost, this 1 Lakh covers Provident Fund(PF), so it is enough if you invest only the remaining amount. You can also pay the remaining amount to PF voluntarily. Here is some of investment plans which are considered under 80C and one time payment.

National Savings Certificate (Indian Post Office) - 100% guaranteed minimum returns of 8%, for every Rs.100, you will get Rs.161 on the 7th year. The interest returned on the 7th year will be taxable.

Equity Linked Savings Scheme (ELSS - Market based) - Returns are not guaranteed in this scheme, this is like investing in share market, lock in period is 3 years. The returns are purely based on market performance.

5yr Fixed Deposit - 100% guaranteed minimum returns, Interest % varies between banks. This is simple FD, but the lock period is 5 years.

LIC Bima Bachat - This is from LIC, and it covers life insurance for us. the returns are minimal, because it covers life insurance. Lock period varies and starts from 9,12,15 years. To be simple, for a sum assured amount, and the age of person insured, LIC calculates a single time premium. After every 3yrs completion, 15% of the insured amount will be returned. On maturity sum assured will be returned with loyalty bonus, if any. Note the word "if any", which is based on LIC profit performance. There are many such single premium insurance plans announced by private sectors, but I have discussed about LIC plan alone here.

Happy Investing and Saving Tax.

Infrastructure Bonds - Additional Tax Saving

Infrastructure Bonds or Tax-Saving Bonds is to save taxes as provided under Section 88 of the Income Tax Act, 1961. The two significant economic factors playing in the investment decisions of Infrastructure Bonds are Inflation and interest rate movements. For exmaple, price of a bond will fall if interest rates rise and vice-versa.

Infrastructure Bonds are available through ICICI Safety Bonds and IDBI Flexibonds. They can reduce tax liability by upto Rs 20,000 per annum, in addition to the 1,00,000 tax excemption provided under Section 80C. Infrastructure Bonds provide investors the option of purchasing and holding the instruments either as physical certificates or in the demat form. The Tax-Saving Bond from ICICI for the month of July 2001 provides two options:

• Face value of Rs 5,000 for 3 years at the rate of 9.00% interest payable annually
• Deep Discount Bonds with a face value of Rs 6,600. These bonds are available for Rs 5,000, and are issued for 3 years and 4 months, after which they are redeemed at their face value. These infrastructure bonds are suitable for an increase in the investment. The terms for the IDBI Bonds are similar also.

Apart from the above Infrastructure Bonds, Rural Electrification Corporation (REC) has come out with an issue of tax-saving infrastructure bonds for investors seeking to utilize the additional Rs 30,000 qualifying limit for investments in Infrastructure Bonds, India.

Infrastructure Bonds do not offer any protection against high inflation since the rate of interest they offer is pre-determined. Against Infrastructure Bonds by pledging them with a bank one can borrow from banks. The amount depends on the market value of the bond and the credit quality of the instrument. Moreover, it should be noted that although Infrastructure Bonds are considered to be safe, there is no assurance of getting the full investment back.