Investment plans to Save Income Tax under Section 80C

[MAGNeT]

So you can see here that tho magnet might have ended up with less than principal after 3 yrs, so what does he do ?

Reinvest again, and hope to make it back+earnings in the future or did i get this wrong ?

U got it right for long term(i didnt average the stuff but sometimes u make money and sometimes it gets less) its best but ya they dont guarantee your money....Its subject to market risk

This bit i did not understand. I thought banks deduct 10.3% regardless of the amount.

Interest per annum above 10k brings 10.3%TDS into picture if its less than that say 7k per annum and u earn 4 lakh per annum its added into your income and your overall income becomes 4 lakh 7 thousand(excluding 80c,80D). Even though tax saving(FDS) u dont have that money in hand at first place but it still counts in your income so ultimately after income tax the % of interest u get is less(sorry but right now i dont have that tax bracket(its 20% i guess) and also doesnt know where have u made investment for tax savings)

The only doubt i have is if TDS is applied than the remaining money in hand(not literally) should be added in your total or not?

(e.g 4 lakh income and u get 12k bank fd interest..tds applies and ard 1236 goes in tax so what about remaining 10764..should that be added in gross)

 

[Aces170]

I always believed in not to mix insurance and investment. They should both be looked in stand-alone basis.

This is what I am planning to do:

1. 50K in PPF

2. 30K in ELSS

3. 20K PF paid by my company.

Although the tax free rate of PPF looks attractive, I have a feeling 5 years down the line the equity markets will definitely give you more then 10% returns, which makes the ELSS option more attractive. In the end it all boils down to the risk you want to take, PPF is a 8% risk free rate..

 

[Konquerror]

Thanks guys for your replies...well I have taken LIC policy of 24.5K per annum...30K is PF paid by my company...so I have only 45k left...I am thinking of investing in SBI mutual funds...but not entire 45K...I was thinking of Post Office/National Savings Certificate/FD...can you guys tell me which one pays better interest?

 

[blr_p]

Interest per annum above 10k brings 10.3%TDS into picture if its less than that say 7k per annum and u earn 4 lakh per annum its added into your income and your overall income becomes 4 lakh 7 thousand(excluding 80c,80D). Even though tax saving(FDS) u dont have that money in hand at first place but it still counts in your income so ultimately after income tax the % of interest u get is less(sorry but right now i dont have that tax bracket(its 20% i guess) and also doesnt know where have u made investment for tax savings)

The only doubt i have is if TDS is applied than the remaining money in hand(not literally) should be added in your total or not?
(e.g 4 lakh income and u get 12k bank fd interest..tds applies and ard 1236 goes in tax so what about remaining 10764..should that be added in gross)

Just so happens i spoke to my tax guy and I asked him about this particular point. He said, so long as you don't exceed annualy Rs.10k per instrument then they don't deduct TDS for that account. If they deduct TDS then you deduct it from your taxable income. Otherwise its added to your income and you pay taxes on it. So it does not make any difference. The only case where it matters is if TDS is very large and then you have to file a refund, this takes time so better to avoid paying it in the first place.

Regarding the mutual funds, he said if you make a profit after the 3 yr period then you pay whatever the capital gains tax is for the period, currently its 10%. Also the limit for MF is not 70k but one lakh

If you consider that depending on which tax bracket you fall into, say 10%, 20% or 30% taxable income. I think 10% capital gains on profit is less than 20% or 30% income tax, if the market is rising then MF is better.

 

[MAGNeT]

Just so happens i spoke to my tax guy and I asked him about this particular point. He said, so long as you don't exceed annualy Rs.10k per instrument then they don't deduct TDS for that account. If they deduct TDS then you deduct it from your taxable income. Otherwise its added to your income and you pay taxes on it. So it does not make any difference. The only case where it matters is if TDS is very large and then you have to file a refund, this takes time so better to avoid paying it in the first place.

Sorry what do u mean by per instrument ..even if u have say 5 different fds with same bank samne branch and their total sum surpasses 10k than TDS will apply.Thanks u brought topoint that we have to mention else we will pay double tax first tds and than the rest of the interest being added to gross and taxed

Btw u can avoid tds angle by opening fds in different branch (i myself bimistake made 2 fds from separate branch of a pvt bank online and saw no tds cut by the bank...but ya i guess its wrong practice

Regarding the mutual funds, he said if you make a profit after the 3 yr period then you pay whatever the capital gains tax is for the period, currently its 10%. Also the limit for MF is not 70k but one lakh

It was 1 Lakh for elss....70k is for PPF ..
Well here is one of my doubt i thought after 3 years whatever u earn is your profit without tax on it...even though if u dont sell it straight.Say sell later or say sell after 6 years the whole profit should be tax free na...that was the only reason u invested the capital(principal)..
OOPs i guess i got it..u are mixing mutual fund and elss together .Mutual funds which u can sell any day encourages capital gain tax not elss ....after all their is limit of 1Lakh on invetsment u wont make 49lakh in 1 year short but u can make in normal mutual fund provided your investment is big say 35lakh hence it entertains capital gain tax

If you consider that depending on which tax bracket you fall into, say 10%, 20% or 30% taxable income. I think 10% capital gains on profit is less than 20% or 30% income tax, if the market is rising then MF is better.

U mixing ELSS mutual fund and mutual fund together ...capital gain tax applies for mutal fund not for elss..But ya it can apply for elss where your entry surpasses the 1 lakh threshold limit

 

[setuniket]

But i thought MFs were better over a longer term than just 3 yrs

yes definitely, but then if at the end of three years you need money, at least you can sell units and that too after earning a decent return out of it. I have certain funds which are more than 10 years old. The initial investment is still there and couple of times I have withdrawn money out of it.

Even when I bought Tax saving fund in Jan, 08(the peak in market) and when I checked after the crash, the fund was still positive for me,,(almost 4-5% up, if I remember correctly..) I was like :O

So if this is the case then all these taxsaver FDs and even NSC's only defer your tax payment till maturity where you have the same hassle again
This bit i did not understand. I thought banks deduct 10.3% regardless of the amount.

You have to pay tax on the return from the investment.
I have always been depositing form 15 so that bank guys dont deduct TDS and then file returns accordingly. But then if you finally pay tax its better to pay TDS and adjust your tax outgo accordingly.

Thanks guys for your replies...well I have taken LIC policy of 24.5K per annum...30K is PF paid by my company...so I have only 45k left...I am thinking of investing in SBI mutual funds...but not entire 45K...I was thinking of Post Office/National Savings Certificate/FD...can you guys tell me which one pays better interest?

If you dont need that money immediately, open a PPF account and deposit 25K and rest two good ELSS funds 10K each. Or else if you want lesser risk then 35K PPF and 5K on two funds each.

NSC 8% compounded half yearly with a investment period of 6 years(Rs 100 invested is Rs 160.xx something after 6 years). For tax saving FD please check you bank. 7.5% for post office tax saving-FD.

 

[blr_p]

Sorry what do u mean by per instrument ..even if u have say 5 different fds with same bank samne branch and their total sum surpasses 10k than TDS will apply.Thanks u brought topoint that we have to mention else we will pay double tax first tds and than the rest of the interest being added to gross and taxed

Btw u can avoid tds angle by opening fds in different branch (i myself bimistake made 2 fds from separate branch of a pvt bank online and saw no tds cut by the bank...but ya i guess its wrong practice

My understanding is if you have 5 FDs then you have 5 instruments, if the income per year of each of them does not exceed Rs.10k then no TDS is deducted. It implies that even if the total income for these five is over Rs.10k then given that each instrument does not by itself exceed Rs.10k, then no TDS is deducted.

There is no double tax, if TDS is deducted you get a statement from the bank indicating how much TDS was deducted, you then deduct yourself that amount from your taxable income. I usually get a provisional certificate from the bank in feb and give that to the tax guy and get the proper one in may and settle it there for that assessment year.

It was 1 Lakh for elss....70k is for PPF ..

Yes, you're right, i confused the two, thing with PF is a lock-in of 15 years, why would anyone want that ?

Well here is one of my doubt i thought after 3 years whatever u earn is your profit without tax on it...even though if u dont sell it straight.Say sell later or say sell after 6 years the whole profit should be tax free na...that was the only reason u invested the capital(principal)..

correct, if you do not sell then there is no tax to be paid if you do, then it comes under capital gains at 10% (currently).

OOPs i guess i got it..u are mixing mutual fund and elss together .Mutual funds which u can sell any day encourages capital gain tax not elss ....after all their is limit of 1Lakh on invetsment u wont make 49lakh in 1 year short but u can make in normal mutual fund provided your investment is big say 35lakh hence it entertains capital gain tax

U mixing ELSS mutual fund and mutual fund together ...capital gain tax applies for mutal fund not for elss..But ya it can apply for elss where your entry surpasses the 1 lakh threshold limit

yes i think i mixed the two here.

So you like ELSS over MF, no tax to be paid at all, must be high risk ?

 

[medpal]

There is long enough discussion here and i would throw some bit of light whatever i know and believe in.

There are two facets of your money management.

Investment and Insurance.

Brokers and companies have been hard selling Insurance as a mode of Investment and our ignorant brethern suffer from their own ignorance.

A known dictum is Dont mixup Insurance and Investment.

Now to invest money so as to avail tax benefits under IT act 80C.

Right now there is exemptable limit is 100000/- per annum.

This can be invested in Post Office Deposits, NSC, PPF/EPF/GPF, ELSS, Tax Saving FD, Insurance, GOI tax rebate bonds, Infrastructure Bonds and like that.

The most popular tools are NSC / PPF / ELSS / Insurance, we tackle them one by one.

NSC :
They are fixed term, fixed return, highly secure Sovereign Instruments.

Pros :
Security
Decent Return on Investment

Cons:
Longer Lockin Period
Low liquidity
Interest earned has to be counted every year and added in Income.
At the time of redemption the gains are adjusted against inflation and you have pay capital gains tax.

PPF :

By far the best scheme by government for investment.

Pros:
Easy handling (You can open at post office or many of the nationalized banks)
Very good tax free return on investment. (interest earned is completely exempt from income tax)
Facility of part payment of investment. (You can invest from 500/- to 70000/- in maximum 12 installments)
Security
Maturity amount is completely free from incometax / wealthtax in the maturity year.

Cons:
Relatively longer lockin period. (the scheme is of 15 years but you can withdraw funds which have completed 7 years in the account).

As the EEE regime is about to end, If you are young still go for the this scheme right now as the effective yield in cae you are into the 30% tax bracket turns out to be around 13.5%.


ELSS :

An equity market linked investment.

Pros :
Very good liquidity and short lockin period.
Higher returns are almost always possible.
A lot of options to choose from
Ease of investment.
Tax free returns (whether you opt for Dividend which is tax free in the hands of receiver or Growth which at the time of maturity of minimum 3 years is totally tax free as there is no long term capital tax gain in equity linked transactions)
Cons :
High risk due to market exposure
Even if incase of Death it cant be redempted.

compared to these FD tend to loose out on inflation adjusted returns as earlier cited the interest earned on it gets added to your income (right now exemption is 12000/- iirc)

So my advise would be
Invest maximum amount you can upto 70k in PPF
then take a term plan.
Then invest in ELSS.

these three options will take care or security of family in case of adverse event / security of principle as majority is in govt scheme / good returns because of substantial amount in elss.
Now about mediclaim :
The limit right now is 15000/- for self and family and 10000/- for parents.

this is covered under section 80(D) and Section 15(D).

this limit is separate from section 80 (C) limit of 100000/-.

so you can claim upto 125000/- rebate in taxes.

hope i helped.

 

[Konquerror]

^^^Thanks a lot man!

 

[blr_p]

The mediclaim or is it medicare seems interesting as its an insurance plan but more targeted towards medical assitance should the need arise.

Would it be better than a PF ?

 

[setuniket]

ELSS is a kind of Mutual Fund which provides you tax exemption under section-80C and capital gains in not taxable so is dividend while regular Mutual fund it is taxable.

The mediclaim or is it medicare seems interesting as its an insurance plan but more targeted towards medical assitance should the need arise.

Would it be better than a PF ?

Medical Insurance and PF/PPF are two extreme ends of investment, one is direct
(you get your money back with some returns tax free) while other is indirect(you get insurance coverage in lieu of money paid). One is money being put to be utilized in future while other provides the insured person cover for medical expenses(in case of Medical Insurance).

In respect to Insurance it entirely depends on your requirement, elderly parents make health insurance very very important while as a young individual you need pure term cover with high value coverage.(not less than 10 times you annual income, more the better).