Plan tax early for better saving

Life insurance policy
Life insurance plans, including endowment, money-back or unit-linked, are entitled to tax benefits. Life insurance lends you peace of mind as it provides protection and financial stability on the unfortunate death of the bread-winner.

Buying or renewal of a life insurance policy, allows the premiums to qualify for deduction under Section 80C of the Income Tax Act, within the overall limit of Rs 1 lakh per annum. The proceeds from a life insurance policy on maturity are exempt under Section 10(10D), subject to the condition that the premium paid in any year is not more than 20 per cent of the sum assured.

Provident Fund
Public Provident Fund
Public Provident Fund (PPF) is for investors who seek to preserve their capital. The returns are to the tune of eight per cent and are tax-free. A PPF account can be opened with any nationalised bank or post office. An investment in PPF up to a ceiling of Rs 70,000 is also allowed as a deduction from taxable income, under Section 80C.

Employee Provident Fund
Employee Provident Fund (EPF) is mandated for the salaried class. There is no upper limit on amount that can be invested in a EPF account per annum. The returns are to the tune of 8.5 per cent and are tax-free. A deduction of up to Rs 1 lakh is allowed under Section 80C.

The return on PF is marginally higher than interest on PPF and the employer also contributes up to 12 per cent of your basic salary to your PF account, making it a more enticing option.

Infrastructure bonds
Depending on the applicable tax slab, individuals investing in tax-free infrastructure bonds can benefit from a tax saving of Rs 2,000 to Rs 6,000 per annum, under Section 80CCF. With a lock-in period of five years and tenure of 10 years, the interest earned is subject to tax.

Long-term infrastructure bonds are aimed at increasing public investments in infrastructure projects across the nation.

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The world has ushered in the New Year with hope, commitment, and anticipation. Expectations are high that 2011 will have spells of euphoria and excitement at the stock exchange as did the previous year.

Amidst all the celebrations, has your tax planning taken a back seat? For all those who postponed their tax planning to the last quarter, it is time to act, and fast.

Some investors rush to the post office or insurance companies in the last few months for tax-saving instruments. However, you must realise that decisions taken in the last minute are usually hasty and not well-informed.

Most often, such hasty investments are usually not in sync with your true requirements. There is a huge possibility of your succumbing to an agent's hard-selling some product without analysing it. Finally, instead of a systematic savings plan spread through the year, investors resort to haphazard last-minute buying.

Instead of pumping in a lump sum in the last quarter, start your tax planning early in the year.

Here are a few tax planning options for you to consider:

Other Section 80C instruments
The interest accrued every year in National Savings Certificate is liable to tax but the interest is also deemed to be reinvested and thus eligible for Section 80C deduction.

The principal component of the EMI towards home loan qualifies for deduction under Section 80C. Equity-linked savings schemes with a lock in period of three years are special tax-saving mutual funds eligible for tax sops.

If you are thinking of a medical insurance risk cover for you and your family, now is the time to act. Premiums paid on such policies for coverage of self, spouse and children can be deducted from your taxable income under Section 80D, up to a maximum of Rs 15,000. In addition to this, you can also claim a tax deduction of up to Rs 15,000 on premiums paid for health insurance cover for parents.

Your tax planning should be in line with your investment planning and not the other way around. Do not procrastinate further. Invest in instruments that suit your requirements.