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Sunday, 5 February 2012

Details about Tax Saving Instruments

1.ULIP(Unit Linked Insurance Plan): 
Systematic insurance cum Investment Plan.
ULIP is a type of life insurance .It allows protection and flexibility in investment. The premium paid is used to purchase units in investment assets chosen by policy holder.
ULIP premium needs to be at least 1/5th of the sum assured to qualify to save 1, 00,000 taxes in a year.

2.Provident Fund Contribution: 
The employees and employer contribute to the fund at the rate of 12% of the basic wages, dearness allowances and retaining allowance, if any , payable to employees per month. The rate of contribution is varied from company to company.
PF is a compulsory investment for all salaried people(PF is compulsory if you work for a company having 20 or more employees)
Every month a certain percentage of your salary is invested in it.This amount gets deducted from your salary and you do not pay any tax on it.
You getyour PF money back at the time of your retirement.

3.Public Provident Fund(PPF): 
PPF is a long term debt scheme of the govt. of India on which regular interest is paid, which is usually higher than the return offered by banks on fixed can invest only up to Rs. 70,000 in a year.

4.Repayment of home loan principal:
Home loans are one of the better ways for saving on your taxes for a longer duration.
There are two sections of the Income Tax Act on this home loan.
  • Sec 24(b) of Income Tax Act 1961 is with respect to the "Interest Paid" on home loan.It is applicable on home loan for purchase of house(or)construction of the house property. You can avail a deduction of upto Rs.1,50,000 of your total tax liability. Also reconstruction (or) renewal (or)repairs is eligible for deductions under this section.
  •  Sec 80(c) of Income Tax Act 1961 is with respect to the "Principal Repayment" of the home loan. It allows you a deduction of up to Rs.1,00,000 on the principal repayment.
5.ELSS(Equity Linked Savings Schemes) of Mutual Fund Companies: 
These Tax saving mutual funds are covered under section 80c means you can invest a maximum of Rs.1,00,000 in them. There is a lock-in period of 3 years.

6. Infrastructure Bonds:
Infrastructure Bonds are making a splash these days just in time before the end of the tax- saving season in march.
You can invest up to Rs.20,000 in these bonds and claim tax deduction.
This is in addition to the Rs.1,00,000 tax deduction limit available under section 80c.

7.National Savings Certificates(NSC): 
Minimum investment is Rs.500/- no maximum limit. Annual interest earned is deemed to be reinvested and qualifies for tax rebate for first 5 years under Section 80c of Income Tax Act. Deposits are exempt from wealth tax. Interest income is taxable.