....... Loading

The new financial year is right here and it’s time to plan your investments to lower tax. If you are a salaried employee, there isn’t much time as the employer demands details of investment strategy by May. In the case of self-employed, there is enough time as they need not worry about tax deduction.

Though the Union Budget, announced in February, has put more cash in everyone’s hand due to change in income tax slabs, it hasn’t altered too many things with respect to tax saving instruments. Hence, life continues to be the same for those who have already signed up for insurance policies or ELSS funds. However, those who kept away from ELSS and relied on PPF or other fixed instruments can look at better options for this year.

Why ELSS? As you are aware, ELSS carries higher amount of risk compared to other investment options for tax relief. However, over 5,000 point correction in Sensex has made equity investment less risky at current level. In fact, not many believe that Sensex can shed another 5,000 point from current level and instead, the argument is that one of the biggest risks for equity investor is that of lack of investment rather than investment!

Often, investors look at ELSS when the stock market is at its peak and tend to ignore it when the sentiment is low on Dalal Street. The current year is an ideal time for fresh equity investors and those who wish to make investment should look at one-time investment into ELSS rather than SIP option as every installment will carry a lock-in period of three years. ELSS funds can be an option even for NRI investors having taxable income in India.

No room for debt? Does it mean every tax planning individual should focus only on ELSS and forget other options such as PPF and NSC. As you are aware, despite the increased focus on mutual funds in the media larger funds get into PPF and other fixed instruments due to their safety. While products such as public provident fund and NSC offer safety, time has come for investors to look at the yield from these products.

While these products offer an assured return of 8%, the yield from them has come down because of the tax on interest income. In addition, in a high inflationary scenario, the real income is much lower than inflation.

Kick-start pension planning: Tax planning is an ideal platform to think about pension planning. The product has become a necessity and since it is also considered a tax saving instrument, it should form a part of portfolio for every individual. While individuals at early age of their career can start the pension plan with a nominal sum, the corpus has to be in line with their livings standards for others.

Medical insurance: This is another product which has become a necessity for all Indian families and sign up for a medical insurance plan even if it is provided by your employer. As you are aware, the tax benefit for the product has been hiked to Rs 20,000 if the applicant pays for his parent. Since the condition of parent being a dependent for tax relief has been dispensed with, medical insurance is also a good tax saving tool. However, that should not be the key driver for your medical insurance investment and instead look at it as a hedge against rising medical expenses. Sign up for a plan even if your employer offers you one.

Source: http://news.in.msn.com/columns/article.aspx?cp-documentid=1344108