Finance India 2012 : Tax Benefits By Indian Government
Across the next 3 months, countless Indian taxpayers will conclude their tax payment for 2011-12. Unlike in the recent years in Finance India, this year’s tax planning will certainly be quite different because many tax rules have changed, but many of your goal posts have even shifted.
The largest change is the favorite tax-saving instrument of risk-averse investors is market-linked. The end users Provident Fund (PPF) will give returns which can be 25 basis points above the baseline yield of your 10-year government bond.
Save extra Rs 9,270 in the PPF this year: The entire limit for housing the PPF has been raised to Rs 1 lakh now from Rs 70,000 earlier. For a person within a highest tax bracket, this enhanced limit of Rs 30,000 means a prospective tax saving of Rs 9,270 a year. The PPF is an effective long-term investment option, even if it is not done owing to tax planning.
Then there is certainly the Direct Taxes Code which could get into effect from April 2012. There’s also a small, but remarkable, change for seniors.
Last year’s budget lowered the age limit for senior citizen taxpayers from 65 to 60. Additionally it introduced a whole new line of very seniors above 80 which has a big exemption of Rs 5 lakh. Despite these alterations, these fundamental principles of tax planning remain unchanged.
Your tax planning should still be guided from our overall financial planning. Don’t go by advertisements because not every tax-saving investment will suit you, your selection of instruments should rely on how soon you will need the money, your expectations of returns and capability to move risk. We will try to find the instruments those different types of investors needs to have in the tax-saving portfolio this year.
How about taking ELSS advantage: For taxpayers who embraced market risk by owning equity-linked savings schemes (ELSS), this can be one more year for possessing this category. The DTC haven t included ELSS within the group of tax-saving options. These funds possess the lowest lock-in period of time 3 years for all Section 80C instruments. So, your funds are not tied up for 5 years for example fixed deposits (FDs) and National Savings Certificates (NSCs).
Given the three-year lock-in period and the level the point at which the markets are, it is unlikely that an investor will lose money by owning ELSS The low minimum amount of these funds (you can start with as good as Rs 500) makes them an ideal foundation of the rookie investor. However, don’t forget that ELSS funds could possibly be risky.
So invest systematically compared to inside a lump sum. Remember, you will have to invest the money before 31 March. Investors will also go for equity exposure through ULIPS. Unlike ELSS funds that cannot be touched through the lock-in period, these insurance-cum-investment plans allow policyholders to tweak the equity and debt allocation in line with the market conditions. The New Pension Scheme also gives equity exposure, however this is proscribed with the greatest amount of 50% of your corpus.