Tax Planning and Financial Investment Strategies
Tax Planning for the Fiscal Year April 2005 - March 2006
In light of the new budget guidelines introduced in February 2005, tax-saving and investment strategies have gained increased importance for individuals due to the following key factors:
- The tax-saving options are now available and applicable to individuals across all income tax brackets.
- Tax benefits have transitioned from a rebate system to a 100% deduction system. In simple terms, every investment made up to Rs 100,000 translates to a full reduction from one's taxable income.
- The minimum taxable income threshold has been raised, resulting in more disposable income for individuals. Previously, a person earning Rs 80,000 was subject to some taxation, but now, taxable incomes up to Rs 100,000 for individuals and Rs 125,000 for women will be exempt from tax.
- Additional investment options with improved liquidity and better returns have been introduced within the existing tax-saving avenues.
- Home loan interest repayments of up to Rs 150,000 are permitted in addition to the Rs 100,000 taxable income bracket and the Rs 100,000 investments eligible for tax deduction. This means that an individual with a housing loan can enjoy a non-taxable income of up to Rs 350,000.
Eligible investments under Section 80C include:
- Investment in the company's Provident Fund (equivalent to 12% of basic and DA).
- Contributions to the Public Provident Fund (PPF).
- Participation in life insurance schemes.
- Investment in Unit-Linked Insurance Plans (ULIPs) with shorter lock-in periods and attractive returns.
- Investment in Equity-Linked Savings Schemes (ELSS) offered by mutual funds.
- Repayment of the principal amount of a home loan.
- Payment of child education fees, up to Rs 12,000 per child, for a maximum of 2 children.
- Investment in National Savings Certificate (NSC) schemes offered by the post office.
By investing Rs 100,000 in these instruments, one can save Rs 30,000 or 30% of their income tax liability.
When selecting investment options, it is important to consider factors such as liquidity, flexibility, and expected returns.
It's worth noting that the Rs 150,000 allowed for home loan interest repayment is an additional deduction.
Given the window of opportunity to save tax for all income categories, it's advisable to start a systematic monthly investment plan from April to ensure that investments are spread throughout the financial year, with well-defined cash flows.
Feel free to contact us for expert guidance on your savings and tax planning to make informed decisions starting now.
Thanks and best regards,
Dilzer Consultants Pvt. Ltd.
307 Embassy Center,
11 Crescent Road,
Bangalore- 560 001.
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