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Know your Tax Saving Instruments

, March 27, 2012, 0 Comments

Dear tax payers, get to know the financial instruments through which you can save tax and these instruments can go a long way in your wealth creation and retirement planning too.

What is ULIP
ULIP as stands for Unit Link Insurance Plan. It is a multi purpose instrument which allows a consumer to combine the desired objectives of life insurance perhaps health rider and investment in one single convenient instrument. ULIP can be classified as Long-term protection cum savings product. There is the benefit of a deduction of tax that is available for premium paid on life insurance policies under Section 80C of the Income Tax Act. This section allows a deduction upto Rs 1 lakh from the taxable income of the individual if the investment is in specified instruments.

What is ELSS
ELSS stands for Equity Linked Saving Scheme. The scheme invests in equity and equity-related securities. The only difference between an ELSS and a diversified Equity scheme is that ELSS have a mandatory lock in period of three years. It gives a dual advantage of Tax Savings along with Capital Appreciation since the gains are tax free at redemption. It is a tax saving tool where individual can get tax benefits under section 80C.

Long Term Infra Bonds
Infra Bonds are debt instruments wherein an investment upto Rs 20,000 is eligible for individual income tax benefits under section 80CCF. This is over and above the normal limit of Rs 1 lakh investments. Most of these bonds have a five-year buy back option with a 10-year tenure. Individuals in a high tax slab find it more appropriate to invest in such high yielding bonds.

Mediclaim
Mediclaim refers to Health Insurance policy which gives security against financial emergencies during sudden illness, surgery and accidents. Payment of Mediclaim premiums, qualify for a tax deduction under section 80D. Expenditure incurred for the treatment of a handicapped dependent qualifies for a tax deduction under section 80DD. Costs incurred for treatment of specified illnesses qualifies for a tax deduction section 80DDB.

Public Provident Fund (PPF)
It is a long-term, government-backed small savings scheme of the Central government started with the objective of providing old age income security to the workers in the unorganised sector and self-employed individuals. One can deposit maximum of Rs. 70,000/- in a year in PPF account. Deposits are qualified for Income Tax rebate under section 88 of Income Tax Act. Deposits completely exempted from wealth tax. Interest is completely tax free under section 80 of Income Tax Act.

(Author can be reached at sumeet_raithatha@yahoo.co.in )






About author
Sumeet is Mumbai based Chartered Accountant, having 10+ years of Strong Experience across Finance & Taxation domain. His expertise includes setting up Finance & Accounting Function and Managing team of professionals to deliver end to end spectrum of F&A, Statutory & Management Audits, Taxation, Costing, Treasury & Funds Management & Finalization of Financial Statements etc. While working with ICICI Prudential, Rajasthan Royals he had the experience in Strategy Planning & Decision making support, implementing financial strategies. ...more