In my previous article I discussed about different type of taxes that we pay to our government which is one of the most important part of its earning but its very tough to give your hard earned money whether it is a tax or anything else so we try to save tax or try to pay minimum that we can pay and our government has allowed us too till certain limit for saving tax other than the exemption of Rs 200000 given by it. We can save tax by doing saving by depositing our money in equity, bonds, Mutual funds, insurance, PF, PPF, EMI of loan, donations, Education fee till a certain amount and also apart from this we get tax exemption for the rent that we pay for housing. This investment gets tax exemption just for giving relief to public as they will get tax exemption and will have savings(with certain return) for future and in turn government will be able to maintain liquidity of money in the market for various purposes. Apart from Rs 200000 according to section 80(c) we can get tax exemption for another Rs 100000 and another Rs 20000 (in infra bond) only by investing at different places according to need. Now lets discuss about different ways of investment in various forms for saving tax:
Equity--> In this we invest directly in the stock market but we can get tax exemption for a amount of Rs 50000 only and the income is below Rs 1000000. So this is not very lucrative for saving tax but people invest at risk of losing/gaining huge amount depending on the stock performance.Do invest directly by yourself only when you have good knowledge about it or else one may lose money.
Bonds--> Bonds are issued by companies to raise fund for their projects from public directly i.e collection of people who buy the bond of a company acts like a bank and gets fixed interest from the company which is generally interest is 2-3% higher than what bank gives on fixed deposit but we can invest till Rs 20000 only in Infrastructure Bonds (according to various sections) for tax saving purpose and amount invested above Rs 20000 will not serve the purpose of tax exemption and also bonds in any other category will not help in saving tax.
Fixed Deposit(FD)--> This type of investing facility is provided by every bank and Post Office in which the investor is paid a fixed rate of interest for particular period of investment of money.
Term Deposit(TD)--> This type of investing facility is provided by every bank and Post Office in which the investor is paid a fixed rate of interest for money invested for a year only. In this investor gets the interest but cannot avail the tax exemption benefit as it is a short term investment.
Recurring Deposit(RD)--> This type of investment facility is also provided by Banks and Post Office in which the investor invests his money in monthly/quarterly/half-yearly mode for certain period generally for 48 months(post office) for which they get interest. In RD investor deposit money for 48 months but has to keep the money for 60 months and then can take out the money after that as the maturity period is reached but if needed can take out the money before maturity period.
Mutual Fund--> In this type of investment one can avail tax exemption benefit only if we keep the money in the company locked for a minimum period of 3 years or else other benefits can be availed but not tax benefit. In Mutual Fund money is invested in share/stock market i.e in equity and debentures. If money is invested in equity then the profit/loss is dependent on the market performance. Money can be invested through one time deposit or through SIP(systematic investment planning) i.e particular amount of money is deposit it to person portfolio every month through ECS from bank account and units are allotted according to current NAV. If money not locked for 3 years then person can take out money invested till date at current value if needed without closing the portfolio.
Insurance--> This investment is done mainly for insuring our self from any tragedy if any happens in future and if every thing is fine for the insured period then we get the maturity of the insured amount with interest. But if we want to take out the money by pre-maturity then we must keep in mind that if we have not invested money at least for 3 years then no money will be given as pre-maturity but in endowment policy case the pre-maturity amount increases with increase in period i.e more the money is invested or kept with the company more is the maturity amount. In this investment type if some one is insured for a amount of Rs 200000 and suppose has given only 5 installments and policy is active and if by chance some thing miss happens(death) then the nominee will get whole Rs 200000. Apart from this tax exemption can also be availed (according to section 80(c)). Insurance is of two type:-
a) Endowment Policy--> In this the insurance is done for long term period i.e 15, 20 or more years and the installment amount is paid in monthly/quarterly/half-yearly/yearly mode whichever suits the person and insurance amount is comparatively much more higher than the installment amount.
b) ULIP(Unit Linked Insurance Policy)--> In this the insurance is done for short term period i.e 5yr at least and the money is invested in share market by the company which may give higher return than endowment plan but risk is also high but that does not affect the insured amount but if everything is normal(health) for the locking period i.e 5 yrs or till the amount is kept with the company the return/maturity amount is affected (higher profit/loss). But now days companies have come out with a plan in which they give the highest NAV value touched on a particular day irrespective of how much down the NAV goes so the investor is on safer side and not much affected by sensex/market and gets maximum profit.
Provident Fund(PF)--> This is mandatory saving scheme imposed by Government of India for all govt employees and private companies permanent employees for their better future and saving gives tax exemption as per exemption policy applicable. Minimum amount is fixed for saving but no max limit is there only after the consent of employer and employee.
Public Provident Fund(PPF)--> This scheme also gives a person tax exemption but is not compulsory. PPF account can be opened in Post Office and banks easily. Maximum limit of saving through PPF is Rs 1 Lac a year and minimum amount is Rs 500 a month and also minimum period of locking is 15 years. This scheme is a central govt and is applicable to everyone who all are interested.
EMI---> All the installments given to repay loans are applicable for tax exemption.
Bonds--> Bonds are issued by companies to raise fund for their projects from public directly i.e collection of people who buy the bond of a company acts like a bank and gets fixed interest from the company which is generally interest is 2-3% higher than what bank gives on fixed deposit but we can invest till Rs 20000 only in Infrastructure Bonds (according to various sections) for tax saving purpose and amount invested above Rs 20000 will not serve the purpose of tax exemption and also bonds in any other category will not help in saving tax.
Fixed Deposit(FD)--> This type of investing facility is provided by every bank and Post Office in which the investor is paid a fixed rate of interest for particular period of investment of money.
Term Deposit(TD)--> This type of investing facility is provided by every bank and Post Office in which the investor is paid a fixed rate of interest for money invested for a year only. In this investor gets the interest but cannot avail the tax exemption benefit as it is a short term investment.
Recurring Deposit(RD)--> This type of investment facility is also provided by Banks and Post Office in which the investor invests his money in monthly/quarterly/half-yearly mode for certain period generally for 48 months(post office) for which they get interest. In RD investor deposit money for 48 months but has to keep the money for 60 months and then can take out the money after that as the maturity period is reached but if needed can take out the money before maturity period.
Mutual Fund--> In this type of investment one can avail tax exemption benefit only if we keep the money in the company locked for a minimum period of 3 years or else other benefits can be availed but not tax benefit. In Mutual Fund money is invested in share/stock market i.e in equity and debentures. If money is invested in equity then the profit/loss is dependent on the market performance. Money can be invested through one time deposit or through SIP(systematic investment planning) i.e particular amount of money is deposit it to person portfolio every month through ECS from bank account and units are allotted according to current NAV. If money not locked for 3 years then person can take out money invested till date at current value if needed without closing the portfolio.
Insurance--> This investment is done mainly for insuring our self from any tragedy if any happens in future and if every thing is fine for the insured period then we get the maturity of the insured amount with interest. But if we want to take out the money by pre-maturity then we must keep in mind that if we have not invested money at least for 3 years then no money will be given as pre-maturity but in endowment policy case the pre-maturity amount increases with increase in period i.e more the money is invested or kept with the company more is the maturity amount. In this investment type if some one is insured for a amount of Rs 200000 and suppose has given only 5 installments and policy is active and if by chance some thing miss happens(death) then the nominee will get whole Rs 200000. Apart from this tax exemption can also be availed (according to section 80(c)). Insurance is of two type:-
a) Endowment Policy--> In this the insurance is done for long term period i.e 15, 20 or more years and the installment amount is paid in monthly/quarterly/half-yearly/yearly mode whichever suits the person and insurance amount is comparatively much more higher than the installment amount.
b) ULIP(Unit Linked Insurance Policy)--> In this the insurance is done for short term period i.e 5yr at least and the money is invested in share market by the company which may give higher return than endowment plan but risk is also high but that does not affect the insured amount but if everything is normal(health) for the locking period i.e 5 yrs or till the amount is kept with the company the return/maturity amount is affected (higher profit/loss). But now days companies have come out with a plan in which they give the highest NAV value touched on a particular day irrespective of how much down the NAV goes so the investor is on safer side and not much affected by sensex/market and gets maximum profit.
Provident Fund(PF)--> This is mandatory saving scheme imposed by Government of India for all govt employees and private companies permanent employees for their better future and saving gives tax exemption as per exemption policy applicable. Minimum amount is fixed for saving but no max limit is there only after the consent of employer and employee.
Public Provident Fund(PPF)--> This scheme also gives a person tax exemption but is not compulsory. PPF account can be opened in Post Office and banks easily. Maximum limit of saving through PPF is Rs 1 Lac a year and minimum amount is Rs 500 a month and also minimum period of locking is 15 years. This scheme is a central govt and is applicable to everyone who all are interested.
EMI---> All the installments given to repay loans are applicable for tax exemption.
