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- Deduction of up to Rs 1 lakh
on investments in specified instruments is
available.
- All sectoral caps (except
PPF) have been removed.
- The EET, if implemented,
could impact small savings.
- ELSS provides the best hedge
against inflation, besides tax brakes.
- PPF isn't a strain on the
pocket - invest as little as Rs 100 to keep your
account alive.
- Life insurance is fine for
risk cover, but is no great shakes as an investment
option.
Eligibility for Tax Saving through
Investment
- Only individuals or HUF were
eligible.
- Only those investments,
contributions and payments made from the income of
the relevant financial year were considered.
- The income should have been
taxable in India.
- Monetary limits set for each
type of investment, contribution, payments had to be
adhered.
For individual and HUF, the
entitled deduction is up to Rs. 1 lakh for investments,
contributions and payments made towards life insurance,
housing loans, PPF, infrastructure bonds, etc. There are
no other sub-limits, except for PPF. It is restricted to
Rs. 70,000.
The Popular Investment Options
- PPF (with post
offices/banks), statutory provdent fund (deducted
and paid by the employees).
- Life insurance premium (with
the LIC or other private insurers).
- Unit-linked insurance (UTI
& mutual funds).
- Equity-linked saving
schemes.
- National Saving
Certificates.
- Infrastructure bonds.
- Home loans.
Public Provident Fund
- PPF (with post
offices/banks), statutory provdent fund (deducted
and paid by the employees).
- Minimum Limit - Rs. 100
- Maximum Limit - Rs. 70,000
- Tenure - Minimum 15 years
- Investment has to be made
every year
It can be opened at any branch of
the SBI or its subsidiaries, at any post office or at
the branches of specially nominated nationalised banks.
The withdrawals are restricted to 50 per cent of the
balance standing at the end of the 4th year.
Life Insurance
- Maximum Limit - Rs. 1 lakh.
- Premium paid in any year
should not exceed 20% of the sum incurred (issued
after 1 April 2003).
- The sum paid in excess of
20% will not be allowed for any deductions.
- The tax-free status is
limited to direct taxes and not to the service tax
payable on insurance maturity.
ULIP
- It is the combination of
investment fund and insurance policy.
- Minimum Limit - Rs. 15,000
with annual contribution of Rs. 1,000.
- Maximum Limit - Rs. 2 lakh
with annual contribution of Rs. 20,000.
- Age of the investor - 12 -
55 years 6 months.
- It is also exempt from
wealth tax.
- Service tax may be charged
since insurance cover is taken.
ELSS (Equity Linked Savings Scheme)
- Maximum Limit - Rs. 1 lakh.
- It offers investors a window
to benefit from the 'power' of equities, with tax
benefits as a sweetener.
- Lock-in period - 3 years.
- Liquidity option is
curtailed.
- It has risk but the return
is maximum, even up to 47%.
National Saving Certificates (NSC)
- Offers flexibility like PPF.
- Available at any post office
in a denomination as low as Rs. 100.
Infrastructure Bonds
- Investments are in the form
of shares/ debentures/ bonds issues by public
financial institutions.
- There is no opportunity of
making a capital gain.
- These are useful for
investment made for long run.
- Money is returned in a
relatively shorter period like 5 years or 3 years.
- The interest rate is the
prevailing interest rate.
Monthly
Income Scheme (MIS)
- 8% of interest.
- Bonus of 10% on maturity.
- Minimum Limit - Rs. 1,000
- Maximum Limit - Rs. 3 lakh (Rs.
6 lakh for joint account).
- Maturity Period - 6 years
- Lock-in Period - 3 years
- Withdrawal before 3 years
there is a deduction of 3.5%
- Withdrawal after 3 years but
before 6 years, bonus will not be paid.
Kisan Vikas Patra
- Money doubles in 8 years and
seven months.
- Available at any post office
in denominations of Rs. 100, Rs. 500, Rs. 1,000, Rs.
5,000 and Rs. 50,000.
- Interest is paid only after
maturity.
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