While the nation was busy watching the state election results, Aditya was worried on the tax projections his employer had shared with him. 85% of his salary for March was projected to be deducted as taxes unless he submitted his fixed income products India investment proofs. Suffering this unexpected tax blow, the only thing he could think of was to call Kuber, whom he trusted for all his financial decisions.
“Kuber, one of my colleagues advised me not to go for usual tax savings like insurance, PPF etc. as they don’t allow an easy access to the money invested. Instead, he advised to pay the taxes and instead invest monies in other instruments of my choice. I thought it was a good advice, but this sudden tax blow is too much. Please help!” Aditya was not clear on whether he made a good decision or not.
“Aditya, choosing to invest for long term wealth accumulation was indeed a wise decision. However, considering the present scenario, let us consider those options wherein we can achieve the dual objectives of investing and tax planning. Income Tax Act allows certain investing options which will help you save tax simultaneously. Let me explain you few of these options.” Kuber started getting into the advisor mode.
Eligible Deductions under the Income Tax Act
- Equity Linked Savings Scheme (ELSS) – ELSS refers to those mutual funds which invest more than 65% of the portfolio in equities and are eligible for tax deduction under Section 80C. These come with a lock-in of 3 years. Considering the maximum limit under the Income Tax Act, one can avail a maximum tax deduction upto Rs. 1.50 lakhs for an investment of equal amount. Any investment made over and above this amount will not enjoy the tax benefit. The return on such funds is also tax-exempt as per the prevailing tax laws.
- National Pension Scheme (NPS) – To promote NPS, Section 80CCD(1B) provides for an additional deduction of upto Rs. 50,000 for contributions made by any individual assessee towards NPS. It provides reasonable equity exposure in the retirement corpus of the individual and can be enhanced at the choice of the subscriber.
- Rajiv Gandhi Equity Savings Scheme (RGESS) –As per the scheme, thefirst-time retail investor is eligible, upto a period of 3 years, for a deduction of 50% of the investment made in specified equity shares upto a maximum of Rs. 25,000 each year. Such investment made is also subject to a minimum lock-in of one year from the end of the financial year in which such investment is made.
“So, investing plans and tax savings can indeed go hand-in-hand. You have saved me a big time, Kuber.” Aditya was in smiles now.
“But promise me, next time, it’s going to be a systematic tax planning instead of last minute hassles.”
“Without a doubt!”Aditya’s tone seemed assuring.