Let’s Plan Our Taxes for Financial Year 2015/ 2016.

We look for requirements in everything so why not when it comes to our tax saving Investments.

Under sec.80C, 80CCC & 80CCD (1)…. An individual / HUF is entitled to an aggregate amount of deduction from gross total income up to 1.5Lacs. On specified investments / contributions /Deposits/ Payments.

We Should rank our Investment decisions for tax savings, on the basis of RETURNS, SAFETY, FLEXIBILITY, LIQUIDITY & TAXABILITY.

 A.    Public Provident Fund - PPF

1.      Rate linked with Govt. bond yield.

2.      Time frame minimum 15 yrs and can be extended in blocks of 5 yrs thereafter.

3.      No risk of default & one of the best fixed income products for long term wealth preservation.

4.      Very poor from liquidity point & Returns are likewise inflation.

B.  Equity Linked Savings Scheme (ELSS) Through Mutual Funds

1.      Better Inflation Adjusted Returns: Equities have the potential to generate Real Positive Returns. (adjusted for inflation).

2.      Wealth Generation over Long Term:  Equities may help in Generating Wealth.

3.      Professional Management : Active portfolio management with an objective to Reduce Volatility and Generate Alpha

4.      Shortest locking period among all & dividends are tax free.

C.    Unit linked Insurance Plan

1.      Buy as an investment if you are sure to pay the premium for the entire term of policy.

2.      Yield good results if held for at least 10-12yrs.

3.      ULIP’s can be equity linked or debt linked.

D.    Provident Fund (PF)/Voluntary Provident Fund (VPF) –

1.      Contribution to EPF is a compulsory deduction, can also invest more than 12% of basic salary.

2.       Suitable for tax payers in their 50s, who don’t want to invest in market linked or tax inefficient bank FDs.

E.   National Pension Scheme –

1.      Low cost structure & It has flexibility in contribution and shifting from equity to debt by 2% every year after investor turns 35yrs of age, till it comes down to 10%

2.      It offers tax benefit under Sec 80CCD (2). Investment gets tax exemption up to Rs 50,000/-, this is over and above 1,50,000 /- of tax deduction under Sec 80C.

3.      Lack of liquidity, can’t access the funds before you turn 60yrs & Also, on maturity, 40% of the corpus to be used to buy an annuity.

F.   Life Insurance Premiums

1.      Returns depend on performance of the policy & can usually expect returns in the range of 4%-6% p.a.

2.      Liquidity very poor & Charges are heavy as compared to other products.

G.  5 yr Bank Fixed Deposits.

1.      Fully Taxable.

2.      Tax deducted at Source if the total interest exceeds Rs.10, 000 in the year.

3.      Specified 5- Year deposits eligible for Sec 80C benefit.

Wishing you a Happy New Year 2016