Tax Savings Plans - Expert Demystify the Myths & Truths

Let me start with just the basic premise of the need for doing this for anyone?

Tax Saver Funds

Pai: Tax savings has been the biggest motivator for most investments worldwide, so many a times governments have initiated a lot reform through this tax savings. So I guess it is a good way of getting people onto the right path. Because without that you may speak about things being good for you, but unless people pursue some tangible benefit, most of them will not take that first step. So tax savings is a good way to get going on some good steps towards financial planning.


Q: Is there is a good thumb rule to work with over here? We talk so much in terms of what to invest in? What kind of returns to expect, for example from equities or FDs etc. But when you look at this whole tax savings phenomenon, is there is a quantum that one should look to save while investing XYZ amount?

Bhingarde: Actually the government allows to invest Rs 1 lakh under the Section 80C . These investments are eligible for a tax saving. There is a thumb rule basically even as Jayant mentioned that is should be liked to your financial goals. Whether you choose equity or debt, it should be purely linked to your financial goals, so that you will stay invested. You will not wait that money to comeback and again rotate into the same kind of investments, but people will keep on doing this exercise throughout their life when they stick to their goals basically.


Q: What kind of changes the direct tax code will have on someone’s savings plan or someone’s investment plan?

Bhingarde: Basically over here whatever they invest under the Section 80C. If they invest into some kind of the equity investments take it Equity Linked Saving Schemes which is called ELSS by the mutual funds. All the dividends, which they earn, will be tax free even after 1 year. Of course there is a lock-in period of the three years for the equity investments, which is ELSS. All these investments are also free from the capital gain. But when they invest into the debt schemes like a five-year post office savings plans or five-years bank deposits. All these debt, whatever interest, which they earn will be taxable. When they invest into the LICs basically they take then insurance plans, that money, which is coming on a maturity will be tax free in the hands of the investors.....(Read More )