BackTax saving should be a part of overall financial planning
It should have a little more strategic input
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This week, Monika Halan, editor, Mint Money, and Vivek Law, editor, Bloomberg TV India, talk about tax planning on the show Smart Money. Edited excerpts:
Vivek: Most of us approach tax planning in a very reverse manner. We think that we first need to fix the tax-saving aspect and then think of financial planning. Shouldn’t it be the other way round?
Monika: Tax saving should be a part of your financial planning exercise. It should have a little more strategic input rather than just running at the last minute and buying whatever is on offer.
So let us look at what are the products on offer wherein you can get the section 80C deduction.
What is the 80C deduction? The government allows you to invest or spend in certain products. Under this you get 1 lakh as deduction from your taxable income every year. Under this Section, there are products for shorter term goals, products for investments, products for spending. And then there are products if you have spent money you can get a deduction on and of course insurance.
So first, let us look at shorter term products. These are products in which you invest and you get the money after a few years. You will get no return in the interim. These are the equity-linked savings scheme (ELSS) products. Mutual funds which have a 3-year lock-in and are usually diversified equity funds.
The other product here is the National Savings Certificate series 8, which is a 5-year product. The interest on most small savings products is between 8.0-8.5%. It is announced every year.
Now, suppose you are in your 30s and you want something more longer in duration. Then there are four products. You have the the Employees Provident Fund (EPF), the Public Provident Fund (PPF), then National Savings Certificate series 9 (which has a 10-year tenor) and lastly the National Pension System (NPS). These are all long-term products. These are products typically a younger person should use for long-term investing.
For senior citizens, there are two products under this section. One is a notified 5-year fixed deposit (FD). So, in the FD you can opt for an annual accrual of interest. Even though the tenor of the FD is five years, you can milk it every year.
And of course, there is the Senior Citizens’ Savings Scheme which gives you the same benefits. It’s a five-plus-three years saving scheme, which means you can extend it up to eight years. You can invest up to 15 lakh in this.
Then there are a few avenues wherein if you spend or have made investments, you can get a deduction. For instance, school fees of two children and the principal of your home loan are part of this deduction. Insurance is also a part of this deduction. The term insurance, which is the best product to buy, gets you the 80C deduction benefit.
For bundled insurance and investment products, the thing to remember is that the sum assured should be at least 10 times of the premium. For example, if the premium is 1 lakh and the death benefit (the amount your family gets when you die) is 9 lakh, you don’t get the 80C benefit.
Write to mintmoney@livemint.com OR sms at 9773270010. Type SM, give a space, and write your query.
Catch the show on Friday: 08:30pm, Saturday: 06:00pm, 08:30pm, Sunday: 10:00am, 12:30pm and 05:30pm on Bloomberg TV India.
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