Action plan for the New Year

December is the month generally you are looking for options to save tax, especially the youngsters who are newly employed, while most of the options are built in by default as per the salary structure and the employer does its best to save maximum tax for employees. However there is an additional voluntary option of saving tax called section 80C, under this section you can get deduction up to Rs. 1,50,000 from your taxable income.

Under section 80C of the Income Tax Act 1961,you can claim benefit for certain payments made and certain investments that are eligible as below.

Payment Options :

• Children’s Tuition Fees
• Stamp Duty and Registration charges for New House
• Repayment of Home Loan Principal
• Life Insurance Premium

Investment Options :

• Contribution to EPF (Employees Provident Fund)
• Contribution to VPF (Voluntary Provident Fund) additional contribution to above
• PPF (Public Provident Fund)
• NPS (National Pension Scheme)
• NSC (National Savings Certificate)
• 5 Years Bank Fixed Deposit
• SCSS (Senior Citizen’s Savings Scheme)
• SSY (Sukanya Samruddhi Yojana)
• ULIP (Unit Linked Insurance Premium)
• ELSS (Equity Linked Savings Scheme)

The youngsters while choosing any option should focus on the following

1. Use option which does not require you to have a Fixed recurring commitment every year – so that in future when you will be having default payments like HomeLoan repayment or children’s Tuition fees you need not have to pay additional for Tax saving.
2. Use option whose return is Not taxable or is less taxable – The returns on Investmentslike NSC, FD, are taxable so care should be taken that you don’t choose these investments.
3. If you are choosing Life Insurance – then go only for online Life Term plans and only if you have dependents
4. Don’t choose options in greed of higher returns – mostly ELSS and ULIPS are aggressively sold with showing a high return earning instruments – Understanding the underlying Risk for such instruments is recommended before committing to it.

Conclusion :

To keep things simple you should simply contribute additionally to your EPF by requesting your employer, the other better option would be to open a PPF account with a Bank and contribute to it the amount required to be invested for Tax saving.