Robin K Garg

By now, you can be expected to have given your mandate in favour of specific taxsaving instruments, but if you haven't, take a look at some of the options available for tax-saving u/s 80C.

Remember, today is the last day of the financial year and the last chance available to you to save on taxes.

1. Life insurance premium

You can claim the deduction up to the full eligible limit for deduction u/s 80C, i.e. Rs1 lakh, paid by way of a new policy premium or deposited in renewal of an existing policy. For claiming the deduction under this head, certain things must be remembered as follows:

• This deduction is available for both individual and HUF assessees
  
• You can claim the deduction on the premium paid for maintaining the life insurance policy of your own life, the life of your spouse or any of your children, whether married, unmarried, dependent or not dependent
  
• Any HUF can claim the deduction on the premium paid for the life insurance policy of any member of the HUF
  
• Except in the case of edeferred annuity', deduction is restricted to the premium paid till the extent of 20% of the sum assured under the policy. For example, if there is a sum assured of Rs2 lakh under the policy, the maximum deductible premium is Rs40,000
  
• As per current provisions, the maturity proceeds/claims received under a life insurance policy are fully exempt u/s 10(10)(D), this can be a very good way to accumulate tax free funds in the long run, but use of life insurance policies should have a prime motive of risk management of an individual, not the tax-saving possible
  
• Other than term plans, all life insurance policies have a mixture of risk premium as well as investment premiums. Since most life insurance policies are for a long term, say for 15-25 years, every single percent deviation in the policy returns can shake your maturity proceeds in a great manner, given the power of compounding.
  
• So, before choosing any policy, do a proper analysis of both the components and the IRR you are expected to get on the policy on maturity. You may also choose to take expert advice for a detailed analysis of your policy before tying the knot with one for 20 years
  
• In most instances, this is a long-term investment commitment. If you raise a regular-premium life insurance policy for 15 years involving a premium of Rs50,000 per annum, you will have to invest the same amount for the preagreed period.Keep this in mind before starting a life insurance policy

2. Public Provident Fund (PPF)

The salient features of PPF are as follows:

• Currently, the maximum allowable investment in PPF is Rs70,000 per annum and the minimum contribution is Rs500 per annum
  
• Only Individual assessees are allowed to invest in PPF account
  
• Currently, the applicable rate of interest is 8% per annum on PPF account
  
• Interest accumulating on PPF account is totally tax-free. So, if you are in the highest tax bracket of say 30%, then tax-free interest means an IRR of 11.58% per annum without surcharge or 12.12% per annum with surcharge.
  
• Maturity period is 15 years from the end of the financial year in which you have opened the account. It means, if you have opened the account on June 1, 2007, then your account shall mature on March 31, 2023 and you may close your account after April 1, 2023. However, a premature withdrawal is allowed (subject to the prescribed rules) after five years from the end of the financial year in which you have opened the account. In the above given case, a premature withdrawal is allowed after April 1, 2013.
  
• You can deposit your contribution in the account in a maximum of 12 instalments per annum

3. National Savings Certificate (NSC)

NSC is another popular tax saving option available to you. The highlights are as follows:

• Maturity period is six years
  
• Only Individual assessees are allowed to invest in NSCs
  
• Interest rate is 8% per annum (compounded semi-annually), giving an IRR of 8.16% per annum. This means, if you invest Rs1 lakh in the NSC, you will get a maturity of Rs1,60,103 after six years
  
• Interest received on NSCs is fully taxable, but on the other side, this is the only tax-saving instrument on which accumulated interest is also eligible for tax-saving u/s 80C. It means, if you have invested Rs1 lakh in the NSC on March 31, 2008, the next year there will an addition of Rs8,160 in your income and you are allowed to claim a deduction of Rs8,160 as an investment u/s 80C on account of the interest accumulated and reinvested on your NSCs
  
• Premature closure is not allowed under normal conditions, except upon the death of the owner, or at the order of a court of law, or forfeiture by a pledge. However, a loan may be raised by having the collateral security of the certificates from most of the banks This is a one-time investment. No further investment commitment is required.

4. Equity linked saving schemes (ELSS)

• Minimum lock-in period is 3 years
  
• This is a single-payment investment. If you invest this year, you are not required to also invest in the forthcoming years. Tax benefit is available on original investment only
  
• Can be invested by any individual or HUF
  
• Return on the investment solely depends on the equity market returns, thus having an inherent nature of great volatility
  
• For getting the returns from this investment, you can choose either the 'dividend' or 'growth' option as per your choice. As per current norms, from a tax-planning perspective, both are tax-free in your hand, but from the financial planning perspective, if you really do not need the cash in your hand, then it is better not to choose the dividend option as in most cases, dividend received is not re-invested and this reduces your corpus as you forego the benefit of compounding

5. Fixed deposits (FDs)

• Minimum five years FD with a scheduled bank or post office
  
• Interest received/ accrued is fully taxable
  
• Can be invested by any individual or HUF both
  
• Single payment investment. If you invest this year, it is not necessary that you invest in the forthcoming years as well

Though the list of features given here is not exhaustive, it could help you choose the instrument that suits you best. For a customised solution, consult your financial planner/ advisor.

The writer is a certified financial planner working as manager - knowledge management with FPSB India. Views are personal and not necessarily those of FPSB India.