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As
we approach the new economic year, there
seems to be a lot of financial newspapers
and magazines going gaga over ‘tax
planning’, each of it promising you
to guide you in the right direction with
tips and guidelines on tax planning. Does
it make you feel like you have come across
a brick wall with no place to turn? Has
it left you confused? Despite the innumerable
admonitions offered through various sources,
have you made a serious attempt to make
the investments? If not, its about time
that you get control over your tax planning
regime before it goes haywire and you find
yourself in a big soup. |
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A
bit of time spent in designing your investment
agenda will help you a great deal to avail
the tax benefits appropriately. And I am
sure you wouldn’t want to see your
hard earned moolah being pulled by the taxman.
You need to know that the investment options
made available this year is lot more different
compared to the previous year. |
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| The schemes available under
section 80 C that qualifies for tax benefits are: |
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Life Insurance
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Public Provident
Fund |
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Equity Linked Saving Schemes
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National Saving Certificate
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Kissan Vikas Patra |
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Till
last year, things might have looked better but now with
the new Exempt Exempt Tax (EET) paving its way and making
a place for itself in the new financial year, things
have begun to look a bit disturbed since it comes as
a package with a lot of new changes. |
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| With
the 2005 Budget, the basic limit set for tax exemption
was Rs 1 lakh, and to a further Rs 1.25 lakh for women
and Rs 1.50 lakh for senior citizens. A person with
income of Rs 1.50 lakh had to pay only Rs 5,000 as tax.
The deduction under Section 80 CCC relating to pension
plans and Section 80 CCD relating to pension funds of
Central Government employees will also be totalled and
the overall limit of deduction under Sections 80C, 80CC
and 80CCD is Rs 1 lakh. |
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| What to expect
in the new EET system: |
As
of now, income tax upto Rs 1,00,000 is exempt
from tax, those falling in the income bracket
of Rs 1,00,000-Rs 1,50,000 is subject to
a tax of 10% and those with an income ranging
from Rs 1,50,000 to Rs 2,50,000 a 20% is
charged and anything above Rs 2,50,000 a
30% tax on the income has to be paid. |
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According
to the Exempt Exempt Tax system, individuals
claiming income tax benefits under 80C will
now have to pay taxes on withdrawals. Withdrawals
before the expiry of the term will also
be taxed. However for the first time investors
will have the option to switch between the
savings instruments which are mentioned
above and the good news is that no tax will
be levied for this switching over between
the saving instruments. |
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Gratuity payments
and superannuation funds will be exempt from this system.
In short all the long term saving instruments are subject
to the EET system and the short and medium term savings
certificates and infrastructure bonds are expected to
be outside the EET umbrella. |
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These changes
may either come into effect from 1st April 2006 or soon
after the announcement of the budget. So without wasting
any time make a wise decision now.
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Investment
in post office is a good option. One of
the reasons being, it’s interest rate,
which is, well gained as compared to the
regular bank deposits and they are also
eligible for tax benefits under section
80C. Under the banner of Postal Life Insurance
the following schemes are offered: |
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| Post Office Monthly
Income Scheme (MIS): |
It
is an ideal scheme for retired age group.
Those wishing to invest a lumpsum amount
and enjoy the benefits on a monthly basis
can opt for this scheme. MIS provides an
interest rate of 8.0% per annum payable
monthly. There is a maximum investment limit
of Rs 3 lakh for an individual account and
Rs 6 lakhs for joint account. A bonus of
10% is paid at the time of maturity. The
minimum investment in a Post-Office MIS
is Rs 6,000 for both single and joint accounts.
Tax benefits can be availed under section
88. |
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| Savings Account:
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| Any individual can open
this account. He/she can opt for single or
joint account. The maximum limit for single
account is Rs 1 lakh and that of joint account
is Rs 2 lakh. The rate of interest that is
offered is 3.5% per annum. Group Account,
Institutional Account, other accounts like
Security Deposit account & Official Capacity
accounts are not allowed. |
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 Post
Savings Deposit:
Any individual can open this account. He/she can opt
for single or joint account. The maximum limit for single
joint account is Rs 1 lakh and that of joint account
is Rs 2 lakh. The rate of interest that is offered is
3.5% per annum. Group Account, Institutional Account,
other accounts like Security Deposit account & Official
Capacity accounts are not allowed. Post Office
Time Deposit:
It operates just like a bank’s
Fixed Deposits. Those investors who want to have a safe
hand on the savings for a fixed period of time can opt
for it. However, one of the major differences between
an FD and P. O. time deposit is the interest rate, which
is earned on a yearly basis rather than on maturity.
Withdrawal can be made at anytime after opening the
account. P. O. Time Deposit has an investment option
of 1, 2, 3 and 5 years.
Post Office Recurring Deposit:
A Post-Office Recurring Deposit Account (RDA) is similar
to a Recurring Deposit in a bank, where you invest a
fixed amount on a monthly basis. The deposit has a fixed
tenure, and the scheme is a powerful tool for regular
savings. Recurring Deposits accumulate money at a fixed
rate of interest, which at present is 7.5% per annum,
compounded quarterly. The scheme is meant for investors
who want to deposit a fixed amount on a regular basis
and enjoy the benefits after a minimum term of five
years. There is no prescribed upper limit on this investment.
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 Deposit
Scheme for Retiring Government Employees: Applicable
for retiring government employees. The scheme is operated
through branches of State Bank of India and is subsidiaries
and selected branches of other nationalised banks at
district headquarters. A return of 8% is ensured per
annum. The minimum amount that has to be invested is
Rs 10,000 and the maximum benefit cannot exceed the
total retirement benefits. Its maturity period is 3
years.
Deposit Scheme for Retiring
Public Sector Employees:
It is applicable for retiring
public sector unit employees. The scheme is operated
through branches of State Bank of India and its subsidiaries
and selected branches of other nationalised banks at
district headquarters. The rate of return offered is
9.5 % per annum.
Kissan Vikas Patra (KVP):
It is an investment
of 8 years 7 months. Within this span the principal
amount gets doubled. This scheme offers premature withdrawal
benefit but it is applicable only after the completion
of one year, but before two years and six months, if
the individual wants the rate of return too. However,
after the completion of one year, the investor can withdraw
the amount but only the face value of the certificate
will be given which does not include interest. KVP is
made available through all Head Post Offices and other
authorized post offices throughout India. The rate of
return offered is 8% per annum.
National Savings Certificates
(NSC):
This scheme is specially designed for government employees,
businessmen and other salaried classes who are IT assesses.
There is no maximum limit on investment. Certificates
can be kept as collateral security to get loan from
banks. Investment up to
Rs. 1,00,000/- per annum qualifies for IT Rebate under
section 80C of IT Act. National Savings Certificates
(NSC) is an assured return scheme. The rate of return
offered is 8% for a duration of 6 years. There is no
prescribed upper limit on investment in NSCs. However,
there is no facility of premature withdrawal. Premature
withdrawal can be opted for, if needed, only after the
completion of 4 years.
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It’s
2006, time to rewind 2005 and see how eventful
the year has been for insurance. To begin
with, the year marked the completion of
five years of the private insurance companies.
The private insurers acquired a total of
26% of the market share in both life and
non-life segments. The general insurance
companies also grew by a surprising 15%.
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Among
the private players, ICICI Prudential Life
Insurance topped the market followed by
Bajaj Allianz and HDFC Standard Life. However,
the Life Insurance Corporation of India
still dominates the insurance sector with
its performance and holds 74% of the market
share. The competition between the private
companies and the state insurer has pushed
up the overall growth of life insurance
by 27% in the first half of 2005. Despite
this dazzling performance, it is noteworthy
to mention that a large section of the Indian
population still remains either completely
uninsured or inadequately insured. Only
10% of the population has life insurance
and about 1% have medical insurance. |
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The
insurance sector has also seen growth in
the non-life sector with ICICI Lombard being
he market leader and acquiring a market
share of 8.11% followed by Bajaj Allianz
with 6.35 %. New India Assurance topped
by acquiring 23.11 % market share. |
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One
of the reasons plotted for this impressive
growth is that a lot of options are being
explored like bancassurnace. It is emerging
as an effective way of gaining more and
more business. |
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LIC
on its overseas expansion spree entered
joint venture in Saudi Arabia, Mauritius
and Nigeria. Not only this, JV in New Zealand
and Egypt is also on the cards. Standalone
health insurance companies became a reality
with IRDA giving consent to Domestic and
Star Allied Company. May be India will stand
witness to the emergence of more standalone
companies. If there are new entrants on
one hand there is AMP Sanmar, which made
an exit from the insurance sector and Reliance
took over the company. This move has created
a stir among people leaving them concerned.
But it can be believed that the company
has moved into safe hands. |
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The
IRDA brought in a lot of key changes by
barring insurers from selling ‘Keyman’
covers. New, stricter guidelines were issued
for ULIPs, one of the main changes being
the introduction of a minimum three-year
lock in period. |
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After
being in discussion for quite some time,
the FDI cap in insurance may soon be raised
to 49% from the present 26%. This will be
a blessing for a lot of private insurers
since the risks will get evenly shared and
capital base will remain unaffected. |
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All
these have affected the common man drastically.
Talking about the benefits, it is important
to mention that the 14 private insurance
companies have been in a position to offer
a host of policies that are served to the
customers on a silver platter. In the process
of trying to surpass each other, the bargain
has become simpler for the common plan.
Not only this, the insurance industry can
expect three new private insurance entrants
with Bharti AXA Life insurance, Shriram
Group and Samsung Life. |
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Having
mentioned that, one can expect the insurance
industry to grow by leaps and bounds. For
now we have to wait to see what 2006 holds
for insurance. |
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