How to choose the Best Investment!
Now let us try to analyze which investment is good for which category of taxpayer. It is a well-known fact that the taxpayers can be classified into different categories depending upon the tax bracket in which they are assessed. For example, the first category of taxpayers would be persons having income in excess of Rs 1 lakh but up to Rs 1,50,000. All those taxpayers coming into this category are required to pay income tax of just 10%. I would like to recommend this group to make investment especially in insurance, NSC, NSS and bank fixed deposit.
Now comes the next category of those taxpayers who are having annual income exceeding Rs 1,50,000 per annum and going up to Rs 2,50,000 per annum. All those taxpayers coming in this bracket are required to pay income tax at 20%. The best module of investment for this category of tax payers would be insurance, payment of tuition fees of the children, ELSS, repayment of housing loan and PPF. Now comes the last category of taxpayers who come within the income bracket of more than Rs 2,50,000 where the maximum marginal rate of income tax is 30%. This category of individual taxpayers should invest in insurance, PPF, ELSS and repayment of the housing loan.
However, the investment in various investment instruments can vary from person to person depending upon his profile of investment and his liking or otherwise. However, purely from the point of view of tax and investment planning it makes no sense to invest in bank fixed deposit especially by those taxpayers who are having high income and high rate of income tax. This conclusion is drawn from the fact that if a person having, say, income in excess of Rs 2,50,000 makes investment in the bank fixed deposit for five years to achieve the benefit of section 80C deduction, he enjoys tax deduction but on his income from bank fixed deposit he will be required to make payment of income tax at the rate of 30%. Hence, we would like to recommend investment in bank fixed deposit as a part of investment strategy to achieve tax deduction u/s 80C only for those tax payers who are coming within the lowest income bracket.
No higher deduction is available for investment in tax saving instruments for senior citizens or for women taxpayers. However, the senior citizens can invest in medical insurance up to Rs 15,000. Sometimes, a question also arises whether the investment in other bonds and investible instruments would entitle the taxpayer to section 80C. For example, your investment in post office monthly deposit account or your investment in senior citizens saving scheme as well as your investment in RBI (reserve Bank of India) bond will not bring home for you any tax saving in terms of section 80C.
In conclusion, please do remember that you have a long time ahead waiting for you up to 31st March, 2008 to make your investment in tax saving instruments but surely it makes better sense to invest now, relax and save tax right now. You can also opt for making the investment not at one go but in installments. Yes, if you have some small money available right now you may better invest now the money in tax saving instrument and as and when you have balance money available at your disposal then make investment at a later date but surely before 31st March, 2008.
Now let us try to analyze which investment is good for which category of taxpayer. It is a well-known fact that the taxpayers can be classified into different categories depending upon the tax bracket in which they are assessed. For example, the first category of taxpayers would be persons having income in excess of Rs 1 lakh but up to Rs 1,50,000. All those taxpayers coming into this category are required to pay income tax of just 10%. I would like to recommend this group to make investment especially in insurance, NSC, NSS and bank fixed deposit.
Now comes the next category of those taxpayers who are having annual income exceeding Rs 1,50,000 per annum and going up to Rs 2,50,000 per annum. All those taxpayers coming in this bracket are required to pay income tax at 20%. The best module of investment for this category of tax payers would be insurance, payment of tuition fees of the children, ELSS, repayment of housing loan and PPF. Now comes the last category of taxpayers who come within the income bracket of more than Rs 2,50,000 where the maximum marginal rate of income tax is 30%. This category of individual taxpayers should invest in insurance, PPF, ELSS and repayment of the housing loan.
However, the investment in various investment instruments can vary from person to person depending upon his profile of investment and his liking or otherwise. However, purely from the point of view of tax and investment planning it makes no sense to invest in bank fixed deposit especially by those taxpayers who are having high income and high rate of income tax. This conclusion is drawn from the fact that if a person having, say, income in excess of Rs 2,50,000 makes investment in the bank fixed deposit for five years to achieve the benefit of section 80C deduction, he enjoys tax deduction but on his income from bank fixed deposit he will be required to make payment of income tax at the rate of 30%. Hence, we would like to recommend investment in bank fixed deposit as a part of investment strategy to achieve tax deduction u/s 80C only for those tax payers who are coming within the lowest income bracket.
No higher deduction is available for investment in tax saving instruments for senior citizens or for women taxpayers. However, the senior citizens can invest in medical insurance up to Rs 15,000. Sometimes, a question also arises whether the investment in other bonds and investible instruments would entitle the taxpayer to section 80C. For example, your investment in post office monthly deposit account or your investment in senior citizens saving scheme as well as your investment in RBI (reserve Bank of India) bond will not bring home for you any tax saving in terms of section 80C.
In conclusion, please do remember that you have a long time ahead waiting for you up to 31st March, 2008 to make your investment in tax saving instruments but surely it makes better sense to invest now, relax and save tax right now. You can also opt for making the investment not at one go but in installments. Yes, if you have some small money available right now you may better invest now the money in tax saving instrument and as and when you have balance money available at your disposal then make investment at a later date but surely before 31st March, 2008.
2 comments:
Nice post dude! Got to know where shud I invest-
Cheers!
~Vishal Biyani
Thanks for detailed description on the vital topic. I do believe to avail Tax deduction from total income as allowable in Income Tax Act, investment u/s 80c is a pivot investment avenues &/or contributions.
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