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Posted: 18-01-2011

Proper planning is mandatory to ease the tax burden
By Swikriti Singh, SiliconIndia
Tuesday, 18 January 2011, 12:14 IST

Bangalore: Were you able to manage every possible tax break that you did deserve when you had filed your tax returns in 2010? If you did, then pat yourself at your back and get ready to go through the same procedure yet again.

The tax season is around the corner that has again put the people start frantic enquiries about where to invest and how to save tax and organize all the necessary details for tax payment by the April 15th deadline. A proper planning on how to save taxes is the need of the hour so as to use the saved money in an effective manner. Filing faux pas, cumbersome calculations and nightmarish notices are just some of the traumatizing examples of the unpleasant picture that the income-tax draws.

The best way to understand the mix of insurance and investment to save taxes is by following the expert\'s opinion. They suggest having a prime focus on Section 80D which covers medical insurance premium deduction and Section 80 C provide life insurance deduction. It also covers Public provident Fund, National Savings Certificate, tax planning schemes from mutual funds, principal payment on housing loan, etc.

Here are a few strategies that any individual can use to save a large chunk of money during the investing tenure:

1.Investing- a long term approach: It is one of the best ways to save on tax bill as by holding the stocks by at least a year, an individual qualifies for the reduced Capital Gains Tax which saves a lot of money.

2.Medical Cover: It covers hospitalization fees for the patient while being admitted in hospital for 24 hours or more for accident, illness, surgery or other essential factors. An amount upto 35, 000 can be saved by having a medical insurance premium which includes a premium of 15, 000 for the individual, his spouse and children and 20, 000 for the senior citizen dependent parents. Having one\'s own medical cover is always advantageous as the cover provided by the company would cease once the individual leaves the company.

3.Taking Education Loan: The banking sector had resulted in getting large amount of funds for education loans which resulted in them being easily available from banks that has resulted in encouraging more students o take up higher education in India and abroad despite their financial shortcomings. Under the Section 80E, tax can also be saved on the interest component of education loans taken for higher education. Once the borrower gets the job, he/she starts repaying the loan and the rate of interest being paid is deducted from the taxes.

4.Sodexo food coupons or gift coupons: Sodexo gift coupons provide a freedom of choice in products has a wide reach in the country and is extremely easy to use. It also provides a tax benefit as gift passes upto 5, 000 are tax-free for the recipients. The food coupons also provide tax benefits to the individual as the amount for which coupons are taken is reduced from the basic salary of the person which reduces the tax to be paid as well.

5.Public Provident Fund: This is the favourite spot for tax payers as once you invest in it, you get a deduction on your income and the interest earned is tax-free. It is a safe scheme since its run by the government. The minimum amount to be deposited is 500 and the maximum is 70, 000 per year. The interest you earn is 8 percent per annum. It\'s always advisable to put all the funds in PPF so as to earn higher returns before the ending of the financial year ending. The experts usually advise to invest before 5th of every month so as to earn interest for that month.

6.Getting a Life Insurance Policy: It offers financial security for the individual and his family. It is also known as one of the most popular investment vehicles in India as it offers more than just tax planning and investment returns. An individual should stick to a pure term cover plan which offers a large cover at very low premium. The online plans make them available at an even cheaper rate. Under the Section 80 C, an amount upto 1, 00,000 can be deducted from the gross income but its benefit is restricted to 20 percent of the actual capital sum assured. Surrender of Plan before premium has been paid for two years will result in reversal tax benefit.

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