Dilshad Billimoria of Dilzer Consultants lists out tax saving instruments available for your clients.
With the tax-savings season upon us,
your clients will be looking to you to help them make smart tax saving choices. Under
Sec 80C, the full amount invested up to Rs 1 lakh is eligible for 100% tax
deduction benefit, i.e. this investment
is reduced from the gross income and can reduce your client’s tax slab and
therefore tax liability. The benefit is a deduction and not a rebate, so, in effect;
the entire amount saved is tax deductible.
Eligible investments for deduction under Sec 80C
Public Provident fund up to Rs 100000 per annum: This option provides for safe and guaranteed returns and a small allocation of savings for tax must be made in this, especially for retirement benefits.
It is best to invest before the 3rd of any month, to ensure, compounding is available for the full month, since calculations are made for interest on the balance lying in the account within the 3rd day of any month for the full month.
Equity Linked Savings Scheme (ELSS): This option provides for market linked returns with a 3 year lock in period. This is a liquid option and provides for high return with a corresponding higher risk proposition.
Post Office investments: These investments have lost their attractiveness since the returns have reduced and the same is taxable. The locks in periods in these schemes also are high.
Principal component of Home loan: The principal component of EMI in the home loan is eligible for deduction up to Rs 100000 under Sec 80C.
Tuition fees for child education: This is allowed as an exemption up to a maximum of 2 children.
Five year fixed deposit in a scheduled commercial bank
Other eligible investments under Sec 80C
Senior citizen savings scheme 2004: This option has recently been introduced as a savings option. The interest is taxable.
Employee Provident Fund (EPF): This is the employee contribution made to the provident fund of 12% of Basic and Dearness Allowance. The rate of interest is 8.60% p.a. Although, the employer contributes a similar amount to the EPF fund, only the employee’s contribution is eligible for tax deduction benefit.
Voluntary provident fund: This option is available to salaried individuals who can invest up to the balance 88 %( 100-12% EPF) of their salary towards VPF. With the new DTC coming in, the amount on withdrawal maybe subject to TDS.
Life Insurance and ULIP plans: This is an option for persons who would like to save in insurance.
Pension plans: This is a must for planning for the long term. Any contribution made to these plans, is eligible for tax deduction under Sec 80C up to Rs 100000.
The younger your client, the lower would be their outflow for a retirement plan. Also, since retirement planning is the longest plan to be planned for which considers pre and post retirement interest rate and inflation rate, this goal must be planned for everyone.
Please note for salaried individuals, additional tax benefit can be sought through the following components of the salary structure:
- HRA deduction
- Conveyance deduction
- Medical benefit deduction
- Leave travel allowance deduction
Therefore, the above deductions can help reduce taxable income of an individual to a large extent.
