Four Easy Ways to Save Your Hard Earned Money from the Taxman
Giving away your hard earned money as taxes is a very tough thing to do. Even the most law abiding citizen feels dejected when she thinks about the time and energy wasted just to make that amount of money, only to give it away in the form of taxes. Fortunately the government has come up with many tax saving options for its citizens. By investing in these instruments we can save the amount, which otherwise would have to be paid as taxes.
Tax Saving Options in India
In India there are many tax saving options introduced both by the government and by the private sector. Understanding these instruments can go a long way in reducing the amount we pay as taxes.
Tax Saving Mutual Funds – A mutual fund is a pool of fund collected by many investors in order to invest in securities, bonds or money market. They are operated by fund managers. An investor buys the units of the fund for which she gets a return.
In India there are many mutual funds which anyone can invest. The government do not tax the income generated from these funds. Some of the main mutual funds operating in India are Birla Tax Relief 96, StanChart Tax Saver Fund, Kotak Tax Saver UTI Equity Tax Saving, Tata Tax Saving Fund and HDFC Tax Saver.
Tax Saving Bonds - A bond is a debt given to the government or corporate for which the lender is paid an interest rate for the debt in a regular interval. One can save tax by investing in bonds because the government do not tax the income received as interest rate to the investor.
The Reserve Bank of India issue a bond called 6.5% Savings Bond, 2003. The period is for five years with 6.5% interest rate paid annually. This falls under the public sector bonds. The government issues these bonds as Stock Certificates and can pay interest rate on a half yearly basis. This bond is of two types namely, 6.5% Savings Bonds Cumulative Bonds and 6.5% Savings Bonds Non-cumulative Bonds. Under the Income Tax Act, 1961 the government of India do not tax income received as interest payment from the bonds.
The private sector also has introduced a number of bonds to the public. Banks such as ICICI, HDFC, IDBI, UTI Bank ltd., offers a variety of bonds but a significant one is the 8% Savings Bond, 2003, which is issued by all the private sector banks. The tenure is for 6 years and the interest rate given is 8%. All organizations provide a bank-ledger account facility to the bond holders. These bonds are available in 2 kinds namely 8% Cumulative Savings Bonds and 8% Non-Cumulative Savings Bonds.
The interest income of the bond in the private sector is taxed by the government but the tax is not deductible at the source.
Tax saving Certificates – National Saving Certificate is an example of a tax saving certificate. It is an investment scheme for salaried class, businessmen and government employees. It is a tax saving scheme with good returns and high safety because the guarantor is the government. It is issued by the Department of Post. The return is 8% per annum and is compounded half-yearly. Because of compounding the interest comes up to 8.16%.
Under Section 88 of Income Tax Act there is an income tax rebate on the amount of money invested in NSC and the interest accruing every year.
Tax Saving investments with Central Government – The central government has introduced a variety of tax saving instruments through the Department of Post. It has become popular among the people mainly because of its good returns. The government introduced these instruments to raise the saving habit of the population. Some of these instruments are Post Office Time deposit, Post Office Monthly Income Scheme, National Saving Certificate, Public Provident Funds etc.
Also the central government has recently introduced tax rebates on medical insurance premiums, housing loan payment etc. Tax rebate is also given to employers who have opted for company shares or received salary in arrears or in advance or received salary of more than 12 months at a single time.
With many avenues open for us to save the amount of money we pay as taxes, it is time we rethink the way we make good use of the money we earn. Being update on these options and understanding the changing government policies will help us to save our hard earned money. A good investment strategy is to arrange our portfolio in such a manner that it includes these tax saving instruments. As the saving goes,’ do not put all your eggs in one basket’.