Tuesday, January 29, 2008

Turning Tax into Investments from my Diary -2

Hi again, apart from Tax saving, why do we need to Invest or save, Lets see..........

Three major things any common individual will look for :

  1. Protect self
  2. Accumulate the amount
  3. Retirement plan

Let us look at the tax instruments according to investment type and also compare and see how they are going to fulfill our basic requirements :- protection, accumulation and retirement.

Sec 80C(2) offers a wide range of tax saving options and some popular ones are listed below:

  • Provident Fund (PF) *Public Provident Fund (PPF)
  • National Saving Certificates (NFC) * Kisan Vikas Patra (KVP)
  • Pension Funds * Housing loan payments
  • Life Insurance * Equity Linked Savings Schemes (ELSS)
  • Fixed Deposits (FD) * Infrastructure Bonds

Lets discuss in detail,

1. Guaranteed Return (PPF, NFC, Infrastructure Bonds, KVP and FDs)


  • These options are considered as safe, as they are backed by govt or reputed financial institutes ( most of the elders suggest this )
  • As name indicates, these options earn fixed or guaranteed rate of Interest every yr.


  • These are not inflation proof in long term. The returns from these investments are in range of 6% - 10% , after inflation between 3%- 4%.
  • Interest or return received from these are taxable. I feel these options help u in postponing paying tax.

Sha's Notes:

Hmm... for me its not fulfilling any of my requirements, these options are like keeping gold in locker where there is not much change in its value and in reverse we need to pay for the locker.

2. Insurance Polices

In this we have two different options, Insurance and ULIP (Unit Linked Insurance Plan)

a) Insurance

  • These generally return a predetermined amount on maturity
  • This is a must for every Individual
  • In case of disability or death, sum assured is given


  • Investment + Protection
  • In protection part it usually includes: Death benefit, Disability & Critical illness
  • Investment works like a mutual fund.
  • Transparency in charges
  • Partial withdrawal facility


In ULIP, a percentage of the premium amount goes for providing insurance coverage. It reduces the growth potential of your investments

Sha's Notes:

Unstable and stressful lifestyle is leading to unexpected health challenges. All the savings may get wiped away with one unforeseen incidents like accident, life threatening diseases e.t.c

Insurance will be very helpful in such cases but finding the appropriate policy is crucial.

ULIP gives both protection and investment at one place. It is taking care of my protection, accumulation and retirement - all three requirements I thought before.

3. ELSS (Equity Linked Savings Schemes)

  • Amount is invested in equity markets
  • 3 yrs locking period
  • Tax free returns
  • Systematic Investment Plan (SIP) facility


Equity markets are volatile and risky compared to other two investing options.

Sha's Notes:

More risk indicates more returns too... This option helps us in investing monthly in small amounts. It's helpful in fulfilling the criteria of accumulation if invested in long term.

Thus, each investment product has distinct characteristics and each is designed to do something different

How much percentage can you invest from your income?? Which combinations will give you the best investment benefits??

....... check this space for more info in my next post

For any further info you may contact at : Incometowealth@gmail.com

Monday, January 28, 2008

Turning Tax into Investments from my Diary-1

I saw most of my friends hurrying, worrying with lots of confusion. It took me no time to understand that it’s all bcoz of Dec - march fever.

4yrs back I was the same.... No.1 worry will be about March salary. Confused on how to retain the salary and where & how to invest. Usually our Tax planning is done by colleagues, friends, agents etc., which is usually according to their point of view.........

Life has to be lived by us, problems have to be faced by us.... no one will feel the pain as you can when there is not enough money in hand in need...

Here is some information that I collected for myself, maybe it is a good start for your future investments.

Taxation is a beautiful invention by the rulers......

Income Tax (IT) is a tax imposed by the govt. on anyone who earns money. But for me tax is something govt. forces people to save & invest for their future. As we don’t know how to do that we just blame and worry. Some of my friends say that I am a positive thinker... when I am not making anything being negative, then its better to be positive... what do u say?

If you are really interested, you can learn how to pay minimum IT legally and have lots of investments. Aaaha!! sorry guys, this is only for the people who want to work legally..... No no to illegal advices.

lets move on to the fun subject... TAX

Taxes are collected in three ways:

  1. TDS - Tax deducted at source on your behalf from the payments received by you..... we receive salary after this cut... many don't even realize
  2. TCS - Tax collected at source on your behalf at the time of spending
  3. Voluntary payments like Advance Tax & Self Assessment Tax

God!! do we need to remember these..... not exactly, but need to know about them.

First two types of taxes are ok for us becoz someone will take care and they are not in our hands. Problem starts at 3rd point becoz it needs to be taken care by us ... hahaha

Everyone who earns income falls under TAX BRACKET. It is important to keep in mind that your 'taxable income' or income after allowable deductions defines your tax bracket.

The current income tax law has 4 tax brackets, which are as follows :

Limit (per yr) Tax Payable (%)

Upto Rs. 1,50,000 Nil

Rs. 1,50,001 - Rs. 3,00,000 10%

Rs. 3,00,001 - Rs. 5,00,000 20%

Rs. 5,00,001 - Rs. above 30%

  • For women (resident Individual), below the age of 65yrs - basic exemption limit is Rs. 1,80,000 and above the age 65yrs - basic exemption limit is Rs. 1,95,000.
  • Surcharge of 10% is applicable only when taxable income exceeds Rs. 10,00,000
  • Education cess is applicable @ 3% on income tax

How much tax can you save?

The govt. made tax planning a lot simpler with section 80C(2). This section includes all 'tax deductible' individual saving instruments under one umbrella - invest upto Rs. 1,00,000 in a tax saving instrument or a combination of them and you can deduct the invested amount from gross taxable income.

why & where to invest, ways of investing e.t.c... we will see all these in my next post........

For any further info you may contact at : Incometowealth@gmail.com