INVESTMENT IN TAX SAVING PRODUCTS

AN OVERVIEW

MAYUR VASANT PATIL

HPGD/JL18/0775

WELINGKAR INSTITUTE OF
MANAGEMENT DEVELOPMENT AND
RESEARCH.

YEAR OF SUBMISSION: JUNE, 2020.

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 ACKNOWLEDGEMENT

With immense pleasure i would like to present this project report on

“Investment in Tax Saving Products an Overview”.

I would like to thank Welingkar Institute of Management for providing

me the opportunity to present this project.

My special thanks to Mr Naresh Malhotra (project guide) for his

invaluable guidance, co-operation and for taking time out his busy
schedule to help me.

Acknowledgements are due to my parents, family members, friends and

also all those people who helped me directly or indirectly in successful
completion of project.

Mayur Vasant Patil

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 CERTIFICATE FROM THE GUIDE

This is to certify that the Project work titled INVESTMENT IN TAX

SAVING PRODUCTS ON OVERVIEW is a Confide work carried out by
MAYUR VASANT PATIL (Roll No. HPGD/JL18/0775) a candidate for the
/post graduate diploma examination of the Welingkar institute of
Management under my guidance and direction.

SIGNATURE OF GUIDE

NAME : Naresh Malhotra

DESIGNATION : Regional Investment Head

ADDRESS : Indusind Bank Ltd,

Ground floor, Coral square,

Opp. Suraj Water Park,

Ghodbunder Road,

Thane - 400615.

DATE: 26 June 2020

TIME:

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 UNDERTAKING BY CANDIDATE
I declare that project work entitled “Investment In Tax Saving Products An
Overview” is my own work conducted as part of my syllabus. I further declare
that project work presented has been prepared personally by me and it is not
sourced from any outside agency. I understand that, any such malpractice will
have very serious consequence and my admission to the program will be
cancelled without any refund of fees. I am also aware that, I may face legal
action, if I follow such malpractice.

Mayur Vasant Patil

Signature of Candidate

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 TABLE OF CONTENTS

 TITLE PAGE…………………………………………………………....1

 ACKNOWLEDGEMENT……………………………………………….2

 CERTIFICATION FROM THE GUIDE……………………………….3

 UNDERTAKING FROM STUDENTS……………………………......4

A. INTRODUCTION

 Tax……………………………………………………………..…6

 Insurance…………………………………………………….....15

 Saving…………………………………………………………...23

 Tax Saving investment……………………………………...…28

B. BACKGROUND

 History of Taxation in India……………………………………31

 Tax Saving Problems……………………………………..…...32

C. METHODOLOGY

 Tax Saving Instruments……………………………………….34

 Types of Tax Deductions…………………………...…………35

 Income Tax Saving In India………………………….…….…40

 Income Tax Saving Products and Schemes………………..42

 Additional Tax Saving Investments Beyond

Section 80C………………………………………….…………57

D. CONCLUSION…………………………………………….…………..62

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E. RECOMMENDATION………………………….………………….....63

F. LIMITATION………………………………………………….………..64

G. BIBLIOGRAPHY………………………………………….…………..65

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 INTRODUCTION

TAX:
A tax is a compulsory financial charge or some other type of levy imposed upon a taxpayer
(an individual or legal entity) by a governmental organization in order to fund government
spending and various public expenditures.[2] A failure to pay, along with evasion of or
resistance to taxation, is punishable by law. Taxes consist of direct or indirect taxes and may
be paid in money or as its labour equivalent.

Most countries have a tax system in place to pay for public, common or agreed national
needs and government functions. Some levy a flat percentage rate of taxation on personal
annual income, but most scale taxes based on annual income amounts. Most countries
charge a tax on an individual's income as well as on corporate income. Countries or subunits
often also impose wealth taxes, inheritance taxes, estate taxes, gift taxes, property taxes,
sales taxes, payroll taxes or tariffs.

Tax is a fee charged by a government on a product, income or activity. There are two types
of taxes- direct taxes and indirect taxes. If tax is levied directly on the income or wealth of a
person, then it is a direct tax e.g. income tax. if tax is levied on the price of a good or service
then it is called as an indirect tax e.g. excise duty. In case of indirect taxes, the person
paying the tax passes on the incidence to another person.

TAX LAW IN INDIA:

INCOME-TAX ACT, 1961:

The levy of income tax in India is governed by the income tax act, 1961. This act came in to
force on 1st April 1962. The act contains 298 sections and XIV schedules. These undergo
change every year with additions and deletions brought about by the annual Finance. Act
passed by the Parliament. In pursuance of the power given by the Income tax act, 1961
rules have been framed to facilitate proper administration of the income tax act 1961.

INCOME TAX RULES:

The administration of direct taxes is looked after by the Central Board of Direct Taxes
(CBDT). The CBDT is empowered to make rules for carrying out the purposes of the act. For
the proper administration of the income tax act, 1961, the CBDT frames rules from time to
time. These rules are collectively called Income tax rules, 1962. It is important to keep in
mind that along with the income tax act, 1961.

TYPES OF TAX:

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  Direct tax
 Indirect tax

DIRECT TAX:
A direct tax is paid directly by an individual or organization to the imposing entity. A taxpayer,
for example, pays direct taxes to the government for different purposes, including real
property tax, personal property tax, income tax, or taxes on assets.

Direct taxes are based on the ability-to-pay principle. This is an economic principle states
that those who have more resources or earn a higher income should pay more taxes. The
ability to charge taxes is a way to redistribute the wealth of a nation. Direct taxes cannot be
passed onto a different person or entity; the individual or organization upon whom or which
the tax is levied is responsible for the fulfilment of the full tax payment. Direct taxes,
especially in a tax-bracket system, are thought by some to be a disincentive to work hard
and earn more money because the more money a person earns, the more taxes they pay.

A direct tax is the opposite of an indirect tax, where the tax is levied on one entity, such as a
seller, and paid by another—such as a sales tax paid by the buyer in a retail setting. Both
taxes are equally important to the revenue generated by a government and, therefore, to its
economy.

DIRECT TAXES IMPOSED IN INDIA:

Some of the important direct taxes imposed in India are mentioned below:

 Income Tax- It is imposed on an individual who falls under the different tax
brackets based on their earning or revenue and they have to file an income tax
return every year after which they will either need to pay the tax or be eligible for
a tax refund.
 Estate Tax– Also known as Inheritance tax, it is raised on an estate or the total
value of money and property that an individual has left behind after their death.
 Wealth Tax– Wealth tax is imposed on the value of the property that a person
possesses.

However, both Estate and Wealth taxes are now abolished.

ADVANTAGES OF DIRECT TAXES:

Direct taxes do have a certain advantage for a country’s social and economic growth. To
name a few,

 It curbs inflation: The Government often increases the tax rate when there is a
monetary inflation which in turn reduces the demand for goods and services and
as a result of descending demand, the inflation is bound to condense.

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  Social and economic balance: Based on every individual’s earnings and overall
economic situation, the Government has well-defined tax slabs and exemptions
in place so that the income inequalities can be balanced out.

DISADVANTAGE OF DIRECT TAXES:

Direct taxes come with a handful of disadvantages. But, the very time-consuming procedure
of filing tax returns is a taxing task itself.

INDIRECT TAX:
It is a tax levied by the Government on goods and services and not on the income, profit or
revenue of an individual and it can be shifted from one taxpayer to another.

Earlier, an indirect tax meant paying more than the actual price of a product bought or a
service acquired. And there was a myriad of indirect taxes imposed on taxpayers.

An indirect tax is collected by one entity in the supply chain (usually a producer or retailer)
and paid to the government, but it is passed on to the consumer as part of the purchase
price of a good or service. The consumer is ultimately paying the tax by paying more for the
product.

Indirect taxes are defined by contrasting them with direct taxes. Indirect taxes can be defined
as taxation on an individual or entity, which is ultimately paid for by another person. The
body that collects the tax will then remit it to the government. But in the case of direct taxes,
the person immediately paying the tax is the person that the government is seeking to tax

INDIRECT TAXES IMPOSED IN INDIA:

 Customs Duty- It is an Import duty levied on goods coming from outside the
country, ultimately paid for by consumers and retailers in India.
 Central Excise Duty– This tax was payable by the manufacturers who would then
shift the tax burden to retailers and wholesalers.
 Service Tax– It was imposed on the gross or aggregate amount charged by the
service provider on the recipient.
 Sales Tax– This tax was paid by the retailer, who would then shifts the tax
burden to customers by charging sales tax on goods and service.
 Value Added Tax (Vat)–It was collected on the value of goods or services that
were added at each stage of their manufacture or distribution and then finally
passed on to the customer.
 GST As Indirect Tax-With the implementation of GST, we have already witnessed
a number of positive changes in the fiscal domain of India. The various taxes that
were mandatory earlier are now obsolete, thanks to this new reformed indirect
tax. Not just that, GST is making sure the slogan “One Nation, One Tax, One
Market” becomes the reality of our country and not just a dream.
That said, with the dawning of the ‘Goods & Services Tax (GST), the biggest relief so
far is clearly the elimination of the ‘cascading effect of tax’ or the ‘tax on tax’
quandary.

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 Under the GST regime, however, the customer is exempted from the tax they would
otherwise pay as a result of the cascading effect.

TAX PLANNING:
Tax Planning is an activity conducted by the tax payer to reduce the tax liable upon him/her
by making maximum use of all available deductions, allowances, exclusions, etc. feasible
under law. In other words, it is the analysis of a financial situation from the taxation point of
view. The objective behind tax planning is insurance of tax efficiency. Tax planning allows all
elements of the financial plan to function in sync to deliver maximum tax efficiency.

Tax planning is critical for budgetary efficiency. A reduced tax liability and maximized the
ability of retirement plans.

TAX PLANNING IN INDIA:

Indian law offers a variety of tax saving options for the taxpayers, allowing for a large range
of options for exemptions and deductions through which you could limit your overall tax
output.

 The deductions are available from Sections 80C through to 80U and can be
utilised by eligible taxpayers.

 All these deductions happen against quantum of tax liabilities.

 There many other sections under the Income Tax Act, 1961 such as exemptions
and tax credits that can lower your tax liabilities.

OBJECTIVES OF TAX PLANNING:

 Reduction Of Tax Liability:

The basic need of tax planning is to reduce tax liability by arranging his affairs in
accordance with the requirements of law, as contained in the fiscal statutes. In many
a cases, a taxpayer may suffer heavy taxation not on account of the dosage of tax
administered by the Act, but, because of his lack of awareness of the legal
requirements

 Minimization Of Litigation:

There is always tug-of-war between taxpayers and tax administrators. Tax payers try
to pay least tax and the tax administrators attempt to levy higher amount of tax.
Where a proper tax planning is adopted by the tax payer in conformity with the
provisions of the taxation laws, the incidence of litigation is minimized

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  Productive Investment:

Channelization, of taxable income to the various investment schemes is one of the

prime purpose of tax planning as it is aimed to attain twin-objectives of: (i) harnessing
the resources for socially productive projects, and, (ii) relieving the tax payer from the
burden of taxation, converting the earnings into means of further earnings.

 Reduction In Cost:

The reduction of tax by tax planning reduces the overall cost. It results in more sales,
more profit and more tax revenue. Healthy growth of economy: The growth of a
nation’s economy is synonymous with the growth and prosperity of its citizens. In this
context, a saving of earnings by legally sanctioned devices fosters the growth of
both. Tax-planning measures are aimed at generating white money having a free
flow and generation without reservations for the overall progress of the nation. On the
other hand tax evasion results generation of black money, the evils of which are
obvious.

 Economic Stability:

Tax planning results in economic stability by way of: (i) availing of avenues for
productive investments by the tax payers and, (ii) harnessing of resources for
national projects aimed at general prosperity of the national economy and (iii)reaping
of benefits even by those not liable to pay tax on their incomes.

 Employment Generation:

Tax planning creates employment opportunities in different ways. Firstly, efficient tax
planning requires some sort of expertise that creates job opportunities in the form of
advisory services. Secondly, amount saved through tax planning is generally
invested in commencement of new business or the expansion of existing business.
This creates new employment opportunities.

PRECAUTIONS IN TAX PLANNING:

Successful tax planning techniques should have following attributes:

 It should be based on up to date knowledge of tax laws. Assesses must have an up

to date knowledge of the statute he must also be aware of judgments of the courts,
the circulars, notifications, clarifications and Administrative instructions issued by the
CBDT from time to time.

 The disclosure of all material information and furnishing the same to the income-tax
department is an absolute pre-requisite of tax planning the concealment in any form
would attract the penalty often ranging from 100 to 300% of the amount of tax sought
to be evaded. Section 271(1)(c) read together with explanations there to.

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  Foresight is the essence of a business and the tax planning should also reflect this
essence. Tax regime is flexible in nature and tax planning model must also be
flexible so that it could be scrutinized in relative situations.

 Tax planning should not be based on tax avoidance.

 Tax planning cannot be attempted in isolation. While doing tax planning we have to
consider the violation of other laws.

TYPES OF TAX PLANNING:

The Tax Planning exercise ranges from devising a model for specific transaction as well as
for systematic corporate planning. These are;

 Short And Long Range Tax Planning:

Short range planning refers to year to year planning to achieve some specific
or limited objective. For example, an individual assesse whose income is like
to register unusual growth in a particular year as compared to the preceding
year, may plan to subscribe to the PPF/NSC’s within the prescribed limits in
order to enjoy substantive tax relief. By investing in such a way, he is not
making permanent commitment but its substantially saving in the tax.

Long range planning on the other hand involves entering into activates, which
may not pay off immediately, for e.g. when an assessed transfers his equity
shares to his minor son he knows that the income from the shares will be
clubbed with his own income, but clubbing would also cease after minor attain
majority.

 Permissive Tax Planning:

Permissive tax planning is tax planning under the express provisions of tax
laws. The tax laws of our country offer many exemptions and incentives.

 Purposive Tax Planning:

Purposive tax planning is based on the measures, which circumvent of law.

The permissive tax planning has the express sanction of the statue while the
purposive tax planning does not carry such sanctions, for e.g. under
section60 to 65 of the income tax act, 1961 the income of the other persons is

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 clubbed in the income of the assesse. If the assesse is in a position to plan in
such a way that these provisions do not get attracted, such a plan would work
in favour of the tax payer because it would increase his disposable resources.
Such a tax plan could be termed as purposive tax planning.

TAX EVASION:
It refers to a situation where a person tries to reduce his tax liability by deliberately
suppressing the income or by inflating the expenditure showing the income lower than the
actual income and resorting to various types of deliberate manipulations. An assessed guilty
of tax evasion is punishable under the relevant laws. Under direct tax laws provisions have
been made for imposition of heavy penalty and institution of prosecution proceeding against
tax evaders.

The tax evaders reduce his taxable income by one or more of the following steps:

(a) Non-disclosure of capital gains on sale of asset.

(b) Non-disclosure of income from ‘Byname transactions’.

(c) Wilfully recording or partial recording of incomes. E.g.: sales, rent, fees, etc.

(d) Charging personal expenses as business expenses. E.g.: car expenses, telephone
expenses, medical expenses incurred for self or family recorded in business books.

(e) Submission of bogus receipts for charitable donations under section 80 G.

TAX AVOIDANCE:
Tax avoidance is a method reducing tax incidence by availing of certain loopholes in the law.
The Royal Commission on Taxation for Canada has explained the concept of tax avoidance
as under: For our purposes the expression “Tax Avoidance” will be used to describe every
attempt by legal means to prevent or reduce tax liability which would otherwise be incurred,
by taking advantage of some provisions or lack of provisions of law. It excludes fraud,
concealment or other illegal measures. The line of demarcation between tax planning and
tax avoidance is very thin and blurred. Any planning which, though done strictly according to
legal requirements, defeats the basic intention of the Legislature behind the statute could be
termed as instance of tax avoidance. It is usually done by taking full advantage of loopholes
adjusting the affairs in such a manner that there is no infringement of taxation laws and least
taxes are attracted. Earlier tax avoidance was considered completely legitimate, but at
present it may be illegitimate in certain situations. In the judgment of the Supreme Court in
McDowell’s case 1985 (154 ITR 148) SC, tax avoidance has been considered as heinous as
tax evasion and a crime against society. Most of the amendments are now aimed at curbing
practice of tax avoidance

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TAX MANAGEMENT:
Tax management is an internal part of the tax planning. It takes necessary precautions to
comply with the legal formalities to avail the tax exemption/deductions, rebates or relief as
are contempt’s in the scheme of tax planning.

Tax management plays a vital role in claiming allowance, deductions and tax exemptions by
complying with the required conditions. The study of tax planning is incomplete without tax
management.

Tax management refers to compliance with the income tax rules and regulations. Tax
management covers matters relating to (a) Taking steps to avail various tax incentives (b)
Compliance with tax rules and regulations (including timely filing of return) (c) Protecting
from consequences of non-compliance of tax rules and regulations. i.e. penalties,
prosecution etc. (d) Review of departments orders and if need apply for rectification of
mistake, filing appeal, tax revision or settlement of tax cases.

AREAS OF TAX MANAGEMENT:

Important areas of tax management are discussed below:

 TDS (Tax Deducted at Source):

Persons responsible for deducting tax at source should deduct from the
income and that should be paid to the central government on time. Moreover
he should issue deduction certificate to the dedicatee’s and file it in the
income tax website.

 Collection Of Tax At Source:

In some special cases, some persons responsible for collecting the tax at
source from the buyers (sec 206C). They should comply with those
formalities.

 Payment Of Tax:

It includes

 Payment of advance tax(

 b) Payment of tax on self-assessment.

 Payment of tax on demand (payment after receiving notice from

authorities)

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 Maintenance Of Books Of Accounts:

Every businessman or a professional must maintain books of accounts and

other relevant documents so that the tax can be computed accurately and
verified by the Assessing Officer. Maintenance of account books, vouchers,
bills, correspondence and agreements, etc. is a part of tax management.

 Furnishing The Return Of Income:

The tax manager must ensure that the return of income is furnished on time
otherwise the assesse will lose the right to carry forward and set off the
losses and become liable to pay interest, penalty, prosecution or fine or both.

 Documentation And Maintenance Of Tax Records:

An assessed should keep complete and updated tax files so that the
documentary evidences can be made available in case of all queries. Tax
files include filed returns, Form 16, documentary evidence in support of
deductions, rebate and relief, court orders, etc.

 Review Of Orders Of Income Tax Department:

Review the assessment orders and other orders received from the tax
department is an important function of tax management. If there is any
mistake in the order, application for rectification can be made. If the order is
prejudicial to the interest of the assesse he can file an appeal, revision or an
application for settlement of case can be made.

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INVESTMENT:
An investment is essentially an asset that is created with the intention of allowing money to
grow. The wealth created can be used for a variety of objectives such as meeting shortages
in income, saving up for retirement, or fulfilling certain specific obligations such as
repayment of loans, payment of tuition fees, or purchase of other assets.
An investment is an asset or item acquired with the goal of generating income or
appreciation. In an economic sense, an investment is the purchase of goods that are not
consumed today but are used in the future to create wealth. In finance, an investment is a
monetary asset purchased with the idea that the asset will provide income in the future or
will later be sold at a higher price for a profit.
To invest is to allocate money in the expectation of some benefit in the future.
In finance, the benefit from an investment is called a return. The return may consist of a gain
(or loss) realised from the sale of a property or an investment, unrealised capital
appreciation (or depreciation), or investment income such as dividends, interest, rental
income etc., or a combination of capital gain and income. The return may also include
currency gains or losses due to changes in the foreign currency exchange rates.
Investors generally expect higher returns from riskier their investments. When a low risk
investment is made, the return is also generally low. Similarly, high risk comes with high
returns.
Investors, particularly novices, are often advised to adopt a particular investment
strategy and diversify their portfolio. Diversification has the statistical effect of reducing
overall risk.
Investment or investing means that an asset is bought, or that money is put into a bank to
get a future interest from it. Investment is total amount of money spent by a shareholder in
buying shares of a company. In economic management sciences, investments mean longer-
term savings.
Investing is putting money to work to start or expand a project - or to purchase an asset or
interest - where those funds are then put to work, with the goal to income and increased
value over time. The term "investment" can refer to any mechanism used for generating
future income. In the financial sense, this includes the purchase of bonds, stocks or real
estate property among several others. Additionally, a constructed building or other facility
used to produce goods can be seen as an investment. The production of goods required to
produce other goods may also be seen as investing.

Taking an action in the hopes of raising future revenue can also be considered an
investment. For example, when choosing to pursue additional education, the goal is often to
increase knowledge and improve skills in the hopes of ultimately producing more income.
Because investing is oriented toward future growth or income, there is risk associated with
the investment in the case that it does not pan out or fall short. For instance, investing in a
company that ends up going bankrupt or a project that fails. This is what separates investing
from saving - saving is accumulating money for future use that is not at risk, while
investment is putting money to work for future gain and entails some risk.

DEFINITION:

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Investment is defined as the commitment of current financial resources in order to achieve
higher gains in the future. It deals with what is called uncertainty domains. From this
definition, the importance of time and future arises as they are two important elements in
investment. Hence, the information that may help shape up a vision about the levels of
certainty in the status of investment in the future is significant. From an economic
perspective, investment and saving are different; saving is known as the total earnings that
are not spent on consumption, whether invested to achieve higher returns or not.
Consumption is defined as one’s total expenditure on goods and services that are used to
satisfy his needs during a particular period. The values of investment or saving, as well as
consumption, can be determined at the macroeconomic level, or at the individual level,
through different statistical methods.

KEY TAKEAWAYS:

 Investment is the act of putting money to work to start or expand a business or

project or the purchase of an asset, with the goal of earning income or capital
appreciation.
 Investment is oriented toward future returns, and thus entails some degree of risk.
 Common forms of investment include financial markets (e.g. stocks and bonds),
credit (e.g. loans or bonds), assets (e.g. commodities or artwork), and real estate.

BASIC INVESTMENT OBJECTIVES:

 Any investment vehicle can be characterized by three factors: safety, income, and
growth.
 Most portfolios have one pre-eminent objective; for example, capital growth with a
view to retirement income.

The objective of a portfolio depends on many factors including the investor's temperament,
their stage of life, marital status, or family situation

The options for investing savings are continually increasing, yet every investment
vehicle can be categorized according to three fundamental characteristics: safety, income,
and growth.

Those options also correspond to investor objectives. While an investor may have more than
one of these objectives, the success of one comes at the expense of others. We examine
these three types of objectives, the investments used to achieve them, and the ways
investors can incorporate them into a strategy.

The following are basic investment objectives:

 Safety

 Income

 Capital growth

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SAFETY:
There is truth to the axiom that there is no such thing as a completely safe and secure
investment. However, we can get close to ultimate safety for our investment funds through
the purchase of government-issued securities in stable economic systems or through the
purchase of corporate bonds issued by large, stable companies. Such securities are
arguably the best means of preserving principal while receiving a specified rate of return.

While no investment option is completely safe, there are products that are preferred by
investors who are risk averse. Some individuals invest with an objective of keeping their
money safe, irrespective of the rate of return they receive on their capital. Such near-safe
products include fixed deposits, savings accounts, government bonds, etc.

The safest investments are found in the money market. In order of increasing risk,
these securities include: Treasury bills (T-bills), certificates of deposit (CD), commercial
paper or bankers' acceptance slips or, in the fixed-income (bond) market, in the form of
municipal and other government bonds and corporate bonds. As they increase in risk, these
securities also increase in potential yield.

There's an enormous range of relative risk within the bond market. At one end are
government and high-grade corporate bonds, which are considered some of the safest
investments around. At the other end are junk bonds, which have a lower investment grade
and may have more risk than some of the more speculative stocks. In other words, corporate
bonds are not always secure although most instruments from the money market are
considered safe.

INCOME:
Some individuals invest with the objective of generating a second source of income.
Consequently, they invest in products that offer returns regularly like bank fixed deposits,
corporate and government bonds, etc.

The safest investments are those likely to have the lowest rate of income return or yield.
Investors must inevitably sacrifice a degree of safety if they want to increase their yields. As
yield increases, so does the risk.

To increase their rate of investment return and take on risk above that of money market
instruments or government bonds, investors may choose to purchase corporate bonds or
preferred shares with lower investment ratings. Investment grade bonds rated at A or AA are
slightly riskier than AAA bonds but typically also offer a higher income return than AAA
bonds. Similarly, BBB-rated bonds carry medium risk, but they offer less potential income
than junk bonds, which offer the highest potential bond yields available but at the highest
possible risk. Junk bonds are the most likely to default.

Most investors, even the most conservative-minded ones, want some level of income
generation in their portfolios, even if it is just to keep up with the economy's rate of inflation.
But maximizing income return can be an overarching principle for a portfolio, particularly for
individuals who require a fixed sum from their portfolio every month. A retired person who
requires a certain amount of money every month is well served by holding reasonably safe
assets that provide funds over and above other income-generating assets, such as pension
plans.

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CAPITAL GROWTH:
While safety is an important objective for many investors, a majority of them invest to receive
capital gains, which means that they want the invested amount to grow. There are several
options in the market that offer this benefit. These include stocks, mutual funds, gold,
property, commodities, etc. It is important to note that capital gains attract taxes, the
percentage of which varies according to the number of years of investment

This discussion has thus far been concerned only with safety and yield as investment
objectives and has not considered the potential of other assets to provide a rate of return
from an increase in value, often referred to as a capital gain.

Capital gains are entirely different from yield in that they are only realized when the security
is sold for a price that is higher than the price at which it was originally purchased. Selling at
a lower price is referred to as a capital loss. Therefore, investors seeking capital gains are
likely not those who need a fixed, on-going source of investment returns from their portfolio,
but rather those who seek the possibility of longer-term growth.

Capital growth is most closely associated with the purchase of common stock, particularly
growth securities, which offer low yields but a considerable opportunity for an increase in
value. For this reason, common stock ranks among the most speculative of investments as
the return depends on what will happen in an unpredictable future. Blue-chip stocks can
potentially offer the best of all worlds by possessing reasonable safety, modest income, and
potential for capital growth generated by long-term increases in corporate revenues and
earnings as the company matures. Common stock is rarely able to provide the safety and
income generation of government bonds. 

Capital gains offer potential tax advantages because of their lower tax rate in most
jurisdictions.

Funds that are garnered through common stock offerings, for example, are often geared
toward the growth plans of small companies, a process that is extremely important for the
overall economy. To encourage investment in these areas, governments choose to tax
capital gains at a lower rate than income. This strategy encourages entrepreneurship and
the founding of new businesses that boost the economy.

SECONDARY OBJECTIVES:
Secondary investment objectives are as follows:

 Tax minimization
 Marketability /liquidity

TAX MINIMIZATION:

 An investor may pursue certain investments to leverage tax minimization as part of their
investment strategy. A highly paid executive, for example, may seek investments with
favourable tax treatment to lessen his or her overall income tax burden. Making contributions
to an IRA or another tax-sheltered retirement plan, such as a 401(k), can be an effective tax
minimization strategy.

19
MARKETABILITY/LIQUIDITY: 

Many of the investments we have discussed are reasonably illiquid, which means they
cannot be immediately sold and easily converted into cash. Achieving a degree of liquidity,
however, requires the sacrifice of a certain level of income or potential for capital gains.

Common stock is often considered the most liquid of investments because it can be sold
within a day or two. Bonds are also marketable, but some bonds are highly illiquid or non-
tradable with a fixed term. Similarly, money market instruments may only be redeemable at
the precise date at which the fixed term ends. If an investor seeks liquidity, money market
assets and non-tradable bonds are not likely to be held in their portfolio.

TYPES OF INVESTMENTS:
There are 2 types of investment, they are as follows:

 Direct investment
 Indirect investment

DIRECT INVESTING:
Direct investing means buying a stake in a specific property, which can be a single asset or
a portfolio of assets.

A single real estate asset is defined as a single property excluding residential properties with
fewer than 4 units.

A property portfolio is a group of property investments, which is owned by one individual or

one company and that shares the same financial goals. The benefits of having a property
portfolio over a single asset is that return expectations can be diversified; if one asset
doesn’t hit its target, other investments might compensate. The overall expected returns of a
portfolio aim for a balanced return from different properties over time.

Two risks are distinguished within an asset portfolio: specific risk and systematic risk.
Specific risk is unique to each individual property and independent from one another. In a
portfolio of several assets, this risk is diversified away amongst each property. For its part,
systematic risk is unavoidable. It is the tendency for assets to move together and to be
correlated. The main systematic risk is the market itself.

Direct investments have the advantage of being more attractive for institutional buyers, as
they are usually of larger size. Investors have a greater control in decision making and can
choose the asset according to criteria such as location, asset type and strategy with fully
transparency of information. However, direct investments are usually less liquid. Investors
must hold the asset over a period of years and cannot sell it in the meantime.

20
INDIRECT INVESTING:
Indirect investing usually involves purchasing shares in a fund. We distinguish usual funds
and blind pools. Fund investing means investing into a fund which then invests on behalf of
many investors. The Fund’s managers find projects which meet pre-established parameters.
For its part, blind pool investing refers to investing in a fund which doesn’t tell investors what
type of business activity they want to pursue. Investors interested in this type of investment
are usually the one who trust the sponsor and don’t want to be involved in the deal by deal
selection.

The greatest advantage of indirect investing is that it allows investors to invest lower
amounts than direct investing. Moreover, it is more liquid as it allows investors to easily buy
and sell their shares and requires reduced management costs. However, in both, investors
have no control and little knowledge about the investment

CATEGORIES:
Investments are generally bucketed into three major categories: stocks, bonds and cash
equivalents. There are many ways to invest within each bucket.

Here are six types of investments you might consider for long-term growth, and what you
should know about each.  Note: We won’t get into cash equivalents — things like money
markets, certificates of deposit or savings accounts — as they’re less about growing your
money and more about keeping it safe.

ALTERNATIVE INVESTMENTS:
There is a vast universe of alternative investments, including the following sectors:

 Real estate

 Hedge funds and private equity funds

 Commodities

 Property defensive investment

 Fixed interest

 Peer to peer lending

 Art and collectibles

 Start-ups and IPO’s

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TYPES OF INVESTMENT RISK:

MARKET RISK:
The main types of market risk are equity risk, interest rate risk and currency risk.
 Equity risk – applies to an investment in shares. The market price of shares varies all
the time depending on demand and supply. Equity risk is the risk of loss because of a
drop in the market price of shares.
 Interest rate risk – applies to debt investments such as bonds. It is the risk of losing
money because of a change in the interest rate. For example, if the interest rate goes up,
the market value of bonds will drop.
 Currency risk – applies when you own foreign investments. It is the risk of losing
money because of a movement in the exchange rate. For example, if the U.S. dollar
becomes less valuable relative to the Canadian dollar, your U.S. stocks will be worth less
in Canadian dollars.

LIQUIDITY RISK:
The risk of being unable to sell your investment at a fair price and get your money out when
you want to sell the investment, you may need to accept a lower price. In some cases, such
as exempt market investments, it may not be possible to sell the investment at all.

CONCENTRATION RISK:
This risk is occurred because your money is diversified in one share only. When
you diversify your investments, you spread the risk over different types of investments,
industries and geographic locations.

CREDIT RISK:
The risk that the government entity or company that issued the bond will run into financial
difficulties and won’t be able to pay the interest or repay the principal at maturity. Credit
risk applies to debt investments such as bonds. You can evaluate credit risk by looking at
the credit rating of the bond. For example, long-term Canadian government bonds have a
credit rating of AAA, which indicates the lowest possible credit risk.

REINVESTMENT RISK:
This risk occurs when you want reinvest in shares. Suppose you buy a bond paying
5%. Reinvestment risk will affect you if interest rates drop and you have to reinvest the
regular interest payments at 4%. Reinvestment risk will also apply if the bond matures and
you have to reinvest the principal at less than 5%. Reinvestment risk will not apply if you
intend to spend the regular interest payments or the principal at maturity.

INFLATION RISK:

The risk of a loss in your purchasing power because the value of your investments does not
keep with inflation. Inflation erodes the purchasing power of money over time – the same
amount of money will buy fewer goods and services. Inflation risk is particularly relevant if
you own cash or debt investments like bonds. Shares offer some protection against inflation

22
because most companies can increase the prices they charge to their
customers. Share prices should therefore rise in line with inflation. Real estate also offers
some protection because landlords can increase rents over time.

HORIZON RISK:
The risk that your investment horizon may be shortened because of an unforeseen event, for
example, the loss of your job. This may force you to sell investments that you were
expecting to hold for the long term. If you must sell at a time when the markets are down,
you may lose money.

LONGEVITY RISK:
This risk is particularly relevant for people who are retired, or are nearing retirement.

FOREIGN INVESTMENT RISK:

When you buy foreign investments, for example, the shares of companies in emerging
markets, you face risks that do not exist in Canada, for example, the risk of nationalization.

23
SAVING:
Saving is income not spent, or deferred consumption. Methods of saving include putting
money aside in, for example, a deposit account, a pension account, an investment fund, or
as cash.[1] Saving also involves reducing expenditures, such as recurring costs. In terms
of personal finance, saving generally specifies low-risk preservation of money, as in
a deposit account, versus investment, wherein risk is a lot higher; in economics more
broadly, it refers to any income not used for immediate consumption. Saving does not
automatically include interest.
Saving differs from savings. The former refers to the act of not consuming one's assets,
whereas the latter refers to either multiple opportunities to reduce costs; or one's assets in
the form of cash. Saving refers to an activity occurring over time, a flow variable, whereas
savings refers to something that exists at any one time, a stock variable. This distinction is
often misunderstood, and even professional economists and investment professionals will
often refer to "saving" as "savings".[2]
In different contexts there can be subtle differences in what counts as saving. For example,
the part of a person's income that is spent on mortgage loan principal repayments is not
spent on present consumption and is therefore saving by the above definition, even though
people do not always think of repaying a loan as saving. However, in the U.S. measurement
of the numbers behind its gross national product (i.e., the National Income and Product
Accounts), personal interest payments are not treated as "saving" unless the institutions and
people who receive them save them.
Saving is closely related to physical investment, in that the former provides a source of funds
for the latter. By not using income to buy consumer goods and services, it is possible for
resources to instead be invested by being used to produce fixed capital, such as factories
and machinery. Saving can therefore be vital to increase the amount of fixed capital
available, which contributes to economic growth.
However, increased saving does not always correspond to increased investment. If savings
are not deposited into a financial intermediary such as a bank, there is no chance for those
savings to be recycled as investment by business. This means that saving may increase
without increasing investment, possibly causing a short-fall of demand (a pile-up of
inventories, a cut-back of production, employment, and income, and thus a recession) rather
than to economic growth. In the short term, if saving falls below investment, it can lead to a
growth of aggregate demand and an economic boom. In the long term if saving falls below
investment it eventually reduces investment and detracts from future growth. Future growth
is made possible by foregoing present consumption to increase investment. However
savings not deposited into a financial intermediary amount to an (interest-free) loan to the
government or central bank, who can recycle this loan.
In a primitive agricultural economy savings might take the form of holding back the best of
the corn harvest as seed corn for the next planting season. If the whole crop were consumed
the economy would convert to hunting and gathering the next season.
Savings is the portion of income not spent on current expenditures. Because a person does
not know what will happen in the future, money should be saved to pay for unexpected
events or emergencies. An individual’s car may breakdown, their dishwasher could begin to
leak, or a medical emergency could occur. Without savings, unexpected events can become
large financial burdens. Therefore, savings helps an individual or family become financially
secure. Money can also be saved to purchase expensive items that are too costly to buy

24
with monthly income. Buying a new camera, purchasing an automobile, or paying for a
vacation can all be accomplished by saving a portion of income.

DEFINITION:
To some people, it’s money in the bank or to some it’s buying stocks or contributing to a
pension plan.
In Economists, saving means only one thing- consuming less out of a given amount of
resources in the present in order to consume more in the future.

OBJECTIVES OF SAVINGS:

The purpose in the Savings is to acquire, renovate (most of the times), and rent the property.
These are long-term investments designed, studied and analysed for you to build a pension
plan based on real assets, at your own pace and always thinking about improving your
standard of living by providing a new source of income, month by month, thanks to the rent.

 To the income obtained from the exploitation of the property via rent. You will

receive it every month, in proportion to your investment.
 To the value growth of the property while maintaining the investment in your
portfolio.

Enjoy Instant Rent:

Savings opportunities are the only type where you receive yields from the moment you
invest, we call it Instant Rent. Thanks to this feature, once you have invested in a Saving
opportunity, you do not have to wait for the opportunity to be acquired, renovated, decorated
or rented. In these opportunities you receive the estimated annual net yield for the rent from
the first moment during the first six months or until the property is rented.

Get In And Out Whenever You Want:

Since these are investments designed to create savings and assets, you can buy or sell your
investment through our Marketplace whenever you want!

TYPES OF SAVINGS:
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Savings are generally categorised into 4 types, they are as follows;
 Personal saving
 National saving
 Saving in personal finance
 Saving in economics

PERSONAL SAVING:
What people save, avoiding, consuming all their income is called personal saving. These
saving can remain on the bank accounts for future use or be actively invested in houses, real
estates, bonds, shares and other financial instruments.

NATIONAL SAVING:
National savings are personal savings plus the business saving s and public savings.
Business savings can be measured by the value of undistributed corporate profits. Public
savings are basically tax revenues less public expenditures.

SAVINGS IN PERSONAL FINANCE:

Within personal finance, the act of saving corresponds to nominal preservation of money for
future use. A deposit account paying interest is typically used to hold money for future
needs, i.e. an emergency fund, to make a capital purchase (car, house, vacation, etc.) or to
give to someone else (children, tax bill etc.).
Within personal finance, money used to purchase stocks, put in an investment fund or used
to buy any asset where there is an element of capital risk is deemed an investment. This
distinction is important as the investment risk can cause a capital loss when an investment is
realized, unlike cash saving(s). Cash savings accounts are considered to have minimal risk.
In the United States, all banks are required to have deposit insurance, typically issued by
the Federal Deposit Insurance Corporation or FDIC. In extreme cases, a bank failure can
cause deposits to be lost as it happened at the start of the Great Depression. The FDIC has
prevented that from happening ever since.
In many instances the terms saving and investment are used interchangeably. For example,
many deposit accounts are labelled as investment accounts by banks for marketing
purposes. As a rule of thumb, if money is "invested" in cash, then it is savings. If money is
used to purchase some asset that is hoped to increase in value over time, but that may
fluctuate in market value, then it is an investment.

SAVINGS IN ECONOMICS:

In economics, saving is defined as post-tax income minus consumption.[3] The fraction of

income saved is called the average propensity to save, while the fraction of an increment to
income that is saved is called the marginal propensity to save.[4] The rate of saving is directly
affected by the general level of interest rates. The capital markets equilibrate the sum of
(personal) saving, government surpluses, and net exports to physical investment.

26
SAVING SCHEMES:
Saving schemes are instruments that help individuals achieve their financial goals over a
particular period. These schemes are launched by the Government of India, public/private
sector banks, and financial institutions. The government or banks decide the interest rate for
these schemes and are periodically updated. You can use the savings you make through
these schemes for emergencies, retirement, higher education, children’s education,
marriage, at the time of job loss, to reduce debts and more.
Saving Schemes – Managing finances becomes a hassle as several people do not know
how to handle money. Most individuals would not have enough money to lead a comfortable
life. The Government of India has considered all these and launched various saving
schemes. These schemes help individuals save a part of their income for future use. Some
schemes contribute from the government to the individuals to make their lives easier.
The Government of India will pay the employer and employee contribution to EPF account of
employees for another three months from June to August 2020. The benefit is for
establishments with up to 100 employees and where 90% of those employees draw a salary
of less than Rs.15,000 per month. The contribution to EPF is reduced to 10% from 12% for
non-government organisations.

IMPORATANCE OF SAVING SCHEMES:

Saving schemes are important for individuals of a country and, in turn, for an economy
because of the following reasons:

 Safety:

 Depositing your hard-earned excess money in saving schemes will help secure it for
your future needs. Holding on to liquid money may not be safe.

 Retirement Funds:

Periodically, depositing money in long-term saving schemes can help you build a
retirement corpus. When you start saving from a young age, it will reward you with a
huge corpus that can be used after your retirement and let you lead a comfortable
life.

 Long-Term Benefits: 

Since most of the schemes make use of compound interest concept for interest
calculation, long-term investment can fetch you unbelievable returns. The minimum
lock-in period of these schemes is five years, and the maximum can go until you
reach the age of 60 years. The compounding of returns, coupled with long-term
savings, will earn you interest on interest and end up as a huge amount on maturity.

27
 Tax Savings: 

Many saving schemes offer one or the other kind of tax benefits—may it be tax
deductions, exemption, or both. Some schemes qualify for a tax deduction on
investment of up to Rs.1.5 lakh under Section 80C of the Income Tax Act. Another
set of schemes offer an exemption on the investment, interest accrued, and the
maturity amount

 Avoid Unwanted Expenses:

When you have all the money at hand, you may end up spending it on unwanted
items. On the other hand, investing the surplus that remains after meeting the
necessary expenses in a suitable saving scheme will help avoid expenditure on
unnecessary goods and services.

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TAX SAVING INVESTMENTS:
Tax Saving Investments are an integral part of one’s life as they offer tax deduction under
section 80C or 80CCC. Taking into account, the importance of these investments, people
frequently wish to invest. However, they are not keen enough to invest due to low returns
and different risks associated with various investments.

The tax-saving season starts from 1st April for both salaried and non-salaried taxpayers. As a
smart investor, one should look for tax saving investments, which not only provides the
benefit of tax exemption but also helps to earn tax-free income. There are many smart ways
to save taxes and enjoy the maximum savings possible. However, for most of the
individuals, tax-planning is a let’s do it later affair. A smarter approach is to start investing in
the early quarters of the financial year so that one can get time to sensibly plan and can avail
the maximum returns on investment from different tax-saving investments.

While choosing the right tax-saving investments plans it is important to consider the factors
like safety, returns and liquidity. Also, it is important to keep a proper understanding of how
the returns will be taxed. If the returns on investment are taxable, then the scope to create
wealth over a long-term gets constrained.

Before moving on to the list of best tax-saving investments schemes, it is important to know
about the key section of the Online Income Tax Act i.e. section 80C. Most forms of tax-
saving investments plan work under the parameters of section 80C of the Income Tax Act.
As per this section, the investments made by the investor are eligible for tax exemption up to
a maximum limit of Rs. 1, 50,000.  Such investments include ELSS (Equity Linked Saving
Scheme), Fixed Deposits, Life Insurance, Public Provident Fund, National Savings Scheme
and Bonds. There are a very few investment avenues that provide a further tax deduction,
over and above this limit. Let's take a look at the best tax-saving investments under section
80C of IT Act.

TAX-SAVING EXERCISE AN IMPORTANT FINANCIAL PLANNING

TOOL:
Proper tax planning not only reduces the tax liability but also helps save towards various
goals one has set at different life stages.

It is important to plan one’s finances properly. Plans should never be made on an ad-hoc
basis or for a temporary goal or towards an ill-conceived objective. By proper tax planning,
one not only reduces the tax liability but also end up saving towards the various goals one
has set at different life stages.

Choosing the right tax-saving vehicle rests primarily on four things: How to avail tax benefits,
the kind of tax-saving instrument, the tenure, and the taxability status. Equally important is to
choose a tax-saving instrument which can be linked to a specific goal.

How to avail tax benefits: One may consider Section 80C which allows annual tax benefits of

29
up to Rs.1.5 lakh in one or more eligible investments and specified expenses. The eligible
investments include life insurance, equity-linked savings schemes (ELSS) mutual funds,
public provident fund (PPF), and National savings certificate (NSC), etc., while expenses
and outflows can include tuition fees, principal repayment of home loan, among others. If the
taxpayers have exhausted their annual limit of Rs.1.5 lakh, they can now look at National
Pension System (NPS) to save for their retirement and in the process save additional tax.
From 2015-16 onwards, an additional deduction of up to Rs.50,000 is also possible. For
someone in the highest 30 per cent income tax bracket, it’s an additional annual saving of
about Rs 15,000.

Premium paid towards a health insurance plan for self and family members qualifies for tax
benefit under Section 80D for Rs.25000 and Rs.30,000 for those above 60. If one has a
home loan, interest payments made towards its repayment can also be claimed under
Section 24. The other deductions include donations under Section 80G, interest payments
under Section 80E for education loan, etc.

Kind of tax-saving instrument:

Within the basket of Section 80C investments, there are two options to choose from – ones
with “fixed and assured returns” and “market-linked returns”. The former primarily consists of
debt assets, including notified bank deposits with a minimum period of five years,
endowment, PPF, NSC, senior citizens savings scheme (SCSC), etc. The ‘market-linked
returns’ category is primarily the equity-asset class. Here, one can choose from ELSS of
mutual funds and the unit-linked insurance plan (ULIP), including pension plans and the
NPS.

Tenure:

All the above tax-saving instruments by nature are medium to long term products - from a
three-year lock-in that comes with ELSS to a 15-year lock-in of PPF.

Taxability of interest:

Another important factor to consider is the post-tax return of the tax-saving investment. For
instance, most fixed and assured returns products such as NSC provide you with Section
80C benefits but the returns, currently 8.1 per cent (five-year) annually, are taxable. This
makes the effective post-tax return equal to 5.60 per cent for the highest taxpayers. Of all
the tax-saving tools, only PPF, EPF, ELSS and insurance plans enjoys the EEE status, i.e.,
the growth is tax-exempt during the three stages of investing, growth and withdrawal.
Considering the annual inflation of six per cent, the real return is almost zero! Inflation
erodes the purchasing power of money, especially over long term.

Making the right choice:

First, identify a goal, medium or long term. An equity-backed tax-saving instrument would
suit long term goals as equities need time to perform. As wealth keeps accumulating over
the long term, try a tax-free investment. And, before considering a taxable investment, see

30
the tax rate that applies to you and consider the post-tax return. A low post-tax return after
adjusting for inflation will not help you in achieving your goals in the long run.

Conclusion:

An Efficient tax planning should ideally begin at the start of every financial year. Remember,
the risks of planning tax-saving in a hurry later are manifold. There is, for instance, a high
probability of picking up an unsuitable product.

Also, there is no one instrument that can help you save tax and at the same time also
provide safe, assured and highest return. Your final choice should ideally be based on a
gamut of factors rather than solely being driven by returns from the financial product.

31
 BACKGROUND
HISTORY OF TAXATION IN INDIA:

Tax payment is mandatory for every citizen of the country. There are two types of tax in India
i.e. direct and indirect. Taxation in India is rooted from the period of Manu Smriti and
Arthasastra. Present Indian tax system is based on this ancient tax system which was based

on the theory of maximum social welfare.

Tax is a mandatory liability for every citizen of the country. There are two types of tax in India
i.e. direct and indirect. Taxation in India is rooted from the period of Manu Smriti and
Arthasastra. Present Indian tax system is based on this ancient tax system which was based
on the theory of maximum social welfare.

The origin of the word "Tax" is from "Taxation" which means an estimate.

In India, the system of direct taxation as it is known today has been in force in one form or
another even from ancient times. Variety of tax measures are referred in both Manu Smriti
and Arthasastra. The wise sage advised that taxes should be related to the income and
expenditure of the subject. He, however, cautioned the king against excessive taxation; a
king should neither impose high rate of tax nor exempt all from tax.

According to Manu Smriti, the king should arrange the collection of taxes in such a manner
that the tax payer did not feel the pinch of paying taxes. He laid down that traders and
artisans should pay 1/5th of their profits in silver and gold, while the agriculturists were to
pay 1/6th, 1/8th and 1/10th of their produce depending upon their circumstances.

Kautilya has also described in great detail the system of tax administration in the Mauryan
Empire. It is remarkable that the present day tax system is in many ways similar to
the system of taxation in vogue about 2300 years ago.

Arthasastra mentioned that each tax was specific and there was no scope for arbitrariness.
Tax collectors determined the schedule of each payment, and its time, manner and quantity
being all pre-determined. The land revenue was fixed at 1/6 share of the produce and import
and export duties were determined on ad-valorem basis. The import duties on foreign goods
were roughly 20% of their value. Similarly, tolls, road cess, ferry charges and other levies
were all fixed.
Kautilya also laid down that during war or emergencies like famine or floods, etc. the taxation
system should be made more stringent and the king could also raise war loans. The land
revenue could be raised from 1/6th to 1/4th during the emergencies. The people engaged in
commerce were to pay big donations to war efforts.

Brief History of Income Tax in India: In India, this tax was introduced for the first time in
1860, by Sir James Wilson in order to meet the losses sustained by the Government on
account of the Military Mutiny of 1857. In 1918, a new income tax was passed and again it
was replaced by another new act which was passed in 1922.This Act remained in force up to
the assessment year 1961-62 with numerous amendments.
In consultation with the Ministry of Law finally the Income Tax Act, 1961 was passed. The
Income Tax Act 1961 has been brought into force with 1 April 1962. It applies to the whole of
India and Sikkim (including Jammu and Kashmir).

32
Since 1962 several amendments of far-reaching nature have been made in the Income Tax
Act by the Union Budget every year.

INVESTMENT PROBLEMS:

 Making The Wrong Investment Decisions:

This is the most common problem everyone has with everyone has with investing.
Even highly intelligent people are still vulnerable to making the wrong investment
choices. Ideally, the goal of investing is to maintain and increase the money we
already have by taking risks that can help us to achieve our financial goals. Although
most people act rationally and also consider every piece of information they get
before making their investment decisions. Some factors such as emotions can
influence us to behave irrationally-thus prompting us to make poor investment
decisions. To overcome this problem, evaluate all information you come across
before investing. This will help you establish when it is worth taking the risk and
whether the investment decision you want to make is in line with your long-term
financial goals. You can also seek professional advice from financial experts prior to
making your decision.

 Failing To Diversify Investment Portfolio:

Most people only focus in a single sector once they start their investing journey.
However, successful investors with a wealth of experience tend to invest in several
sectors. Investing in only one sector can’t guarantee you maximum results on your
money, no matter how much you invest. In fact, it can only expose you to risk, in the
sense that if that sector experiences a dramatic loss, you will also experience a major
loss as well. The best way to overcome this problem is to diversify your investment
portfolio by investing in as many sectors as you can. For example, you can invest in
precious metals as a store of wealth. Precious metal increase in value once the stock
market retreats thus significantly minimizes your net portfolio loss. You can also
invest in

 Not Having A Proper Investment Strategy:

Most people assume that just because they have extra money at their disposal, they
are ready for investment. This is disastrous because like with anything that needs
planning, investing also requires proper thought and solid strategies that will work for
you.
Always start with crafting a profitable investment strategy before you start your
endeavours. Your strategy should evaluate any possible risks or potential losses on
your money.
Investing is not the same as gambling. Whatever way you intend to invest; it is worth
knowing that your success largely depends on how good your investment strategy is.

 Fear Of Loss:

33
 Even the most successful investors had this fear at some point when starting out.
Like already mentioned, investing is not gambling, but everyone has fears when it
isn’t clear whether they will return a positive yield.
While everyone has fears of losing their money you should remember that as an
investor you are simply a risk taker. Without taking proper risk and proceeding with
making your plan you will never succeed as an investor.
To solve this problem, evaluate your investment idea and see whether it is worth the
risk. Also evaluate your situation, in the case that you do have possible losses, which
will prevent you from putting yourself in a difficult situation financially.

 Expecting Instant Gains:

Investing is a long journey that can’t be finished overnight. Almost everyone is eager
to get gains right from the moment they invest. However, it can take months or even
years before you get substantial yields on your investment.
The reason why most people expect instant gains is simply because they aren’t
patient enough. The best solution to this problem is focusing on the long-term
benefits rather than short-term benefits.

34
 METHODOLOGY

TAX SAVING INSTRUMENTS:

Tax planning is the analysis of one's financial situation from a tax efficiency point of view so
as to plan one's finances in the most optimized manner. Tax planning allows a taxpayer to
make the best use of the various tax exemptions, deductions and benefits to minimize their
tax liability over a financial year. This process varies from person to person and depends,
among many factors, taxable income, time schedule for investments, risk bearing inclination,
existing investment pattern, expected returns etc. Over the years, tax planning scenario has
become more dynamic and complicated, due to constant changes in the tax laws and falling
interest rates. Further tax planning cannot be done in isolation; it should be a part of overall
Financial Planning.

Tax planning is an essential part of a stable financial life. Hence, the understanding of
available tax deductions can help you reduce your income tax liability in every financial year
and make better financial decisions. These tax-saving options, if used after exhausting the
limit under Section 80C, will help you to invest and reduce tax liability through deductions,
exemptions, and benefits.

 During tax season, there is a rush for investments in tax-saving instruments

 There are various tax savings instruments such as life insurance, fixed deposits, etc.

 These instruments offer tax benefits under various sections of the Income Tax Act
1961

There are various types of tax planning and tax saving tools, they are as follows:

 Tax planning through life insurance.

 Tax planning through ensuring assured return.
 Tax planning with market linked instruments.
 Tax planning through availing other deductions.
 Tax benefits and home loans.
 Tax planning by availing Relief of tax.

35
TYPES OF TAX DEDUCTIONS:
 Section 80C (Deduction On Investment):
The maximum tax exception limit under section 80C has been retained as
Rs.1.5 Lakh only. When it comes to tax savings, Section 80C lies at the top of
the recall list. Every income-tax payer is familiar with the provisions of Section
80C and the investment avenues available under it. However, what many do
not know is that there are other deductions under Section 80 which can be
used to one’s advantage to further reduce your tax liability. These deductions
are related to medical insurance premium, education loan, expenses on
medical treatment, donations to various organizations and funds, house rent
paid, among others.
The various investment avenues or expenses that can be claimed as tax
deductions under section 80C are as follows:
 PPF (Public Provident Fund)
 EPF (Employee’s Provident Fund)
 Five year Bank or Post Office Tax Saving Deposits
 NSC (National Saving Certificates)
 ELSS Mutual Funds (Equity Linked Saving Schemes)
 Kid’s Tuition Fees
 SCSS (Post Office Senior Citizen Savings Scheme)
 Principal repayment of Home Loan
 NPS (National Pension System)
 Life Insurance Premium
 Sukanya Samriddhi Account Deposit Scheme

 Section 80CCC (Insurance Premium):

Contribution to annuity plan of LIC (Life Insurance Corporation Of India) or
any other Life Insurance Company for receiving pension from the fund is
considered for tax benefit. The maximum allowable Tax deduction under this
section is Rs.1.5 Lakh.

 Section 80CCD (Pension Contribution):

Employee can contribute to Government notified Pension Schemes (like
National Pension Scheme-NPS). The contributions can be up to 10% of the
salary Gross Income further, additional deduction of up to Rs 50,000 benefit
under section 80CCD(1b).
To claim this deduction, the employee has to contribute to Government
recognized Pension Schemes like NPs. The 10% of salary limit is applicable
for salaried individuals and Gross income is applicable for non-salaried. The
definition of salary in only ‘Dearness Allowance’. If your employer also
contributes to Pension Scheme, the whole contribution amount (10% of
salary) can be claimed as tax deduction under section 80CCD (2).

36
 Total deduction under section 80C, 80CCC and 80CCD (1) together cannot
exceed Rs 1,50,000 for the financial year. The additional tax deduction of Rs
50,000 under section 80CCD (1b) is over and above this Rs.1.5 Lakh limit.

 Section 80D (Medical Insurance):

Deduction under section 80D on health insurance premium is Rs 25,000. For
Senior Citizen it is Rs 30,000. For very senior citizen above the age of 80
years who are not eligible to take health insurance, deduction is allowed for
Rs 30,000 toward medical expenditure.
Preventive health check-up (medical check-up) expenses to the extent of Rs
5,000/- per family can be claimed as tax deductions. Remember, this is not
over and above the individual limits as explained above. (Family includes:
Self, spouse, dependent children and parents).

The premium paid on medical insurance policy (commonly referred to as a

mediclaim policy) to cover your spouse and you, dependent children and
parents against any unexpected medical expenses, qualifies for a deduction
under Section 80D. The maximum amount allowed annually as a deduction is
Rs 25,000. If you are a senior citizen, the maximum deduction allowed is Rs
30,000. Further, if you pay medical insurance premium for your parents, you
can claim an additional deduction of up to Rs 25,000 under this section. For
example, if you pay a premium of Rs 25,000 for yourself and Rs 25,000 for
your parents, you will be eligible for a total deduction of Rs 50,000. If your
Parents are Senior Citizen than deduction amount can be of up to Rs. 55,000.

 Section 80DD (Disabled Dependent):

If you have incurred any expenditure on the medical treatment of a

handicapped ‘dependent’ with disability, the same qualifies for deduction
under Section 80DD of the Income Tax Act. The deduction is a fixed sum of
Rs 75,000 p.a. if the handicapped dependent is suffering from 40% of any
disability. If the disability is severe (i.e. 80% of any disability), then a higher
deduction of Rs 125,000 can be claimed.

 Section 80DDB (Medical Expenditure):

An individual (less than 60 years of age) can claim up to Rs 40,000 for the
treatment of specified critical ailments. This can also be claimed on behalf of
the dependents. The tax deduction limit under this section for Senior Citizens
is Rs 60,000 and for very Senior Citizens (above 80 years) the limit is Rs
80,000. To claim Tax deductions under Section 80DDB, it is mandatory for an
individual to obtain ‘Doctor Certificate’ or ‘prescription’ from a specialist
working in Government or private hospital.

 Section 80E (Interest On Education Loan):

37
 If you take any loan for higher studies, tax deduction can be claimed under
Section 80E for interest that you pay towards your education loan. Principal
repayment on educational loan cannot be claimed as tax deduction.

This section definitely comes as a boon to all of you who intend taking a loan
to pursue higher education such as full time graduation and post-graduation.
The loan can be taken either by you for your education or for your relative’s
education. The term ‘relative’ here includes spouse, any child or of the
student of whom individual is legal Guardian. The entire amount of interest
which you pay on the loan during the financial year is eligible for deduction
under this section. You should avail of a loan from an approved charitable
institution or a notified financial institution. The deduction is available for a
maximum of 8 years or till the interest is fully paid off, whichever is earlier.

 Section 80EE (Interest On Home Loan):

Additional deduction for interest on housing loan borrowed for acquisition of

self-occupied house property by an individual (over and above the deduction
of Rs 2 lakhs under section 24). First time Home Buyers can claim an
additional Tax deduction of up to Rs 50,000 on home loan interest payments
under section 80EE. The below criteria has to meet-up for claiming tax
deduction under section 80EE.

 Loan amount should be less than 35 lakh.

 The value of the house should not be more than Rs 50 lakh.

 The home buyer should not have any other existing residential house
in his name.

 Section 80G (Donations):

If you have given donations to certain specified funds, charitable institutions,

approved educational institutions, etc., the donation amount qualifies for
deduction under this section. The deductions allowed can be 50% or 100% of
the donation, subject to the stated limits as provided under this section.

 Section 80GG (House Rent Paid):

The following criteria allowable as deduction under section 80GG:

 25% of total income.

 Rent paid- 10% of total income.

If you have paid rent for any furnished or unfurnished accommodation

occupied for the purpose of your own residence, you can claim deduction
under this section. This benefit is available to both, self-employed and

38
 salaried individuals who are not in receipt of any House Rent Allowance
(HRA).

 Section 87 A Rebate:

If you are earning below Rs 5 lakh, you can save an additional Rs 3,000 in
taxes. Tax rebate under section 87 A has been raised from Rs 2,000 to Rs
5,000.

10. Section 80TTA (Interest from Saving Bank Account).

This deduction can be claimed up to Rs 10,000 in respect of interest income
received from saving bank account with a banking company, a post office or a
co-operative society engaged in the business of banking.

 Section 80U (Physical Disability).

This is similar to Section 80DD. Individuals suffering from specified disability

qualify for deduction under Section 80U of the Income Tax Act. A fixed
deduction of Rs 75,000 is allowed if the person is suffering from 40% of any
disability. If an individual suffers from a severe disability (i.e. 80% of any
disability), then a higher deduction of Rs.1,25,000/- is allowed.

 Section 24(B):

Interest payable on House loans borrowed can be claimed as deduction

under section 24B for up to Rs 2 lakh in case of a self-occupied house. If your
property is let-out one then the entire interest amount can be claimed as tax
deduction. Interest related to years of completion of construction can be fully
claimed irrespective of completion date.

 Section 54:
Long-term capital gain on the sale of the residential house
This exemption is available to an Individual or HUF having profit on the sale
of a residential house (which is held by assesse more than 24 months) and
purchase a new residential house from that profit within one year before the
date of sale or two years after the date of sale of the original house or
construct a new house within 3 years from the date of sale of the original
house.

39
 Section 54EC:
Long-term capital gain on the sale of land, building or both
This exemption is available on profit from the sale of a long-term capital asset
i.e. land or building or both and invest that profit in bonds of NHAI or REC or
other specified bonds by the Central government. within 6 months from the
date of sale of the original asset. Maximum exemption allowed under this
section is Rs 50 lakh.

 Section 54F:
Long-term capital gain on the sale of a capital asset other than a
residential house
This exemption is available to an individual or HUF having profit on the sale of
a capital asset other than a residential house (which is held by assesse more
than 24 months) and purchase a new residential house from that profit within
one year before the date of sale or two years after the date of sale of the
original house or construct a new house within 3 years from the date of sale
of the original house.

40
INCOME TAX SAVING IN INDIA:
There is a host of entire legitimate ways of saving tax under the Income Tax Act, 1961.
These include tax-saving mutual funds, NPS, insurance premiums, medical insurance and
many others. In this article, we cover all the major tax deductions under the Income Tax Act

Use up Your Rs.1.5 Lakh Limit under Section 80C:

The below mentioned investments/deductions are all subject to a cap of Rs.1.5 lakh. In other
words, they are either/or investments and making one type of investment will reduce room
for another:

 Tax-Saver FDs:

You can get a tax deduction of up to Rs.1.5 lakh under 5 year tax-saver FDs.
The carry a fixed rate of interest currently between 7-8%.The interests on
these FDs is taxable.

 PPF (Public Provident Fund):

Public Provident Fund is a government established savings scheme with

tenure of 15 years available at most banks and post offices in India. Its rate
changes every quarter but is currently 8%. The interest on PPF is tax-free.

 ELSS Funds:

These are mutual funds which invest a minimum of 80% of their assets in
equity. They have a lock-in of 3 years. The returns on ELSS funds are subject
to Long Term Capital Gains Tax (LTCG) at 10%, over and above an
exemption limit of Rs.1 lakh.

 NSC (National Saving Certificate):

A National Savings Certificate has a tenure of 5 years and a fixed rate of

interest. The rate is currently 8%. The interest on NSC is also automatically
counted towards the Rs 1.5 lakh 80C limit and is tax-deductible if no other
investments are using up the limit.

41
 Life Insurance Premiums:

Premiums for different types of insurance policies including ULIPs, term

insurance and endowment policies are tax deductible up to Rs 1.5 lakh.
However the insurance cover must be at least 10 times the annual premium.

 National Pension System (NPS):

This deduction is available under Section 80CCD up to Rs 1.5 lakh for

contributions to NPS. This is over and above the Rs 50,000 deduction
available under Section 80CCD (1B) discussed below.

 Home Loan Repayment:

Repayment of the principal amount on a home loan is tax deductible up to Rs

1.5 lakh per annum.

 Payment Of Tuition Fees:

Payment of tuition fees for your children is tax deductible up to Rs 1.5 lakh
per annum.

 EPF:

Under the EPF Act 12% of the pay of employees in the organised sector is
deducted towards Employees Provident Fund. This deduction counts toward
the Rs.1.5 lakh limit under Section 80C.

 Senior Citizens Savings Scheme:

Contribution to the SCSS is tax deductible up to Rs 1.5 lakh. SCSS has

tenure of 5 years and is available to those above 60. The rate for SCSS is
higher than prevailing FD rates and is currently 8.7% (it is taxable).

 Sukanya Samriddhi Yojana:

Parents of a girl child below the age of 10 can get this deduction. This
account has a tenure of 21 years or until the girl marries after turning 18. It
has an interest above prevailing rates (currently 8.5%) and the interest is tax-
free.

42
INCOME TAX SAVING PRODUCTS AND SCHEMES:

EQUITY LINKED SAVINGS SCHEME:

Equity Linked Savings Scheme, popularly known as ELSS are close-ended, lock-in period of
3 years diversified equity schemes offered by mutual funds in India.[1][2] They offer tax
benefits under the new Section 80C of Income Tax Act 1961.[3] ELSS can be invested using
both SIP (Systematic Investment Plan) and lump sums investment options.[4][5][6] There is a 3
years lock-in period, and thus has better Liquidity compared to other options like NSC and
Public Provident Fund.[7]

ELSS is 100% diversified equity funds with tax benefits. A distinguishing feature of ELSS is
that unlike regular equity funds, investments in tax saving funds are subject to a compulsory
lock-in period of three years. The minimum application amount is Rs 500, with no upper limit.
You can either make lump sum investments or investments through the Systematic
Investment Plan (SIP). Investments in ELSS are eligible for a deduction up to Rs 150,000
p.a. under Section 80C. Long term capital gains, if any, are exempt from tax

The equity-linked saving scheme is the diversified mutual fund scheme, which has two
different features- first the investment amount in ELSS scheme is eligible for tax exemption
up to the maximum limit of Rs.1.5 Lakh under section 80C of Income Tax Act and secondly,
the investment made in ELSS has a lock-in period of 3 years.  ELSS funds offer the interest
rate of 15%-18%. However, the returns are not fixed in an equity-linked saving scheme and
vary according to the market performance of the fund. The investors can opt for dividend or
growth option in ELSS fund according to one’s own suitability or requirement. However, from
April 1st 2018, the dividends in an equity scheme are 10% taxable. Thus, the investors who
choose the growth option over dividend are likely to yield tax-effective returns.

In order to minimize the risk and gain long-term capital returns, the investors can diversify
the investment in more than one ELSS scheme on the basis of the industry exposure and
market capitalization. This tax saving investments scheme offers flexibility and liquidity in
investment and is best suitable for individuals who have a high-risk appetite. ELSS scheme
offers a high return on investment over a long-term period along with the benefit of tax-
exemption. Besides this, ELSS investment also offers transparency and ease of investment
as one can track their investment online in a simple and hassle-free way.  

NATIONAL PENSION SYSTEM:

The National Pension System (NPS) is a voluntary defined contribution pension system in
India. National Pension System, like PPF and EPF is an EEE (Exempt-Exempt-Exempt)
instrument in India where the entire corpus escapes tax at maturity and entire pension
withdrawal amount is tax-free.[1]

NPS, introduced on May 1, 2009, is the new addition to the family of investments that qualify
for deduction under Section 80C. It is basically an investment avenue to plan for your
retirement. Contributions to this scheme are voluntary and available to individuals in the age
bracket of 18-60 years. There are two types of accounts:

Tier-I account: In case of the Tier-I account, the minimum investment amount is Rs 500 per
contribution and Rs.6,000 per year, and you are required to make minimum 4 contributions

43
per year. Under this account, premature withdrawals up to a maximum of 20% of the total
investment is permitted before attainment of 60 years, however the balance 80% of the
pension wealth has to be utilized to buy a life annuity.

Tier-II account: While opening this account you will have to make a minimum contribution of
Rs 1,000. The minimum number of contributions is 4, subject to a minimum contribution of
Rs 250. However, if you open an account in the last quarter of the financial year, you will
have to contribute only once in that financial year. You will be required to maintain a
minimum balance of Rs 2,000 at the end of the financial year. In case you don’t maintain the
minimum balance in this account and do not comply with the number of contributions in a
year, a penalty of Rs 100 will be levied. In order to have this account, you first need to have
a Tier-I account. This account is a voluntary account and withdrawals will be permitted under
this account, without any limits.

While investing money, you have two investment choices in NPS i.e. Active or Auto choice.
Under the Active asset class, your money will be invested

As, one of the best tax-saving investments scheme National Pension Scheme help to
provide tax-exemption under three different sections as mentioned below.

1. The contribution, up to the maximum limit of Rs.1.5 lakh can be claimed for tax
exemption under section 80C of IT Act.
2. Under Section 80CCD (1b) one can get additional deduction up to Rs.50, 000.
3. If 10% of the basic salary of the individual is contributed by the employer in the
National Pension Scheme, then the amount is not taxed.

NPS started with the decision of the Government of India to stop defined benefit pensions for
all its employees who joined after 1 January 2004. While the scheme was initially designed
for government employees only, it was opened up for all citizens of India between the age of
18 and 65 in 2009. It is administered and regulated by the Pension Fund Regulatory and
Development Authority (PFRDA).

On 10 December 2018, the Government of India made NPS an entirely tax-free instrument
in India where the entire corpus escapes tax at maturity; the 40% annuity also became tax-
free. The contribution under Tier-II of NPS is covered under Section 80C for deduction up to
Rs. 1.50 lakh for income tax benefits, provided there is a lock-in period of three years. The
change in NPS was notified through changes in The Income-tax Act, 1961, during the 2019
Union budget of India. NPS is limited EEE, to the extent of 60%. 40% has to be compulsorily
used to purchase an annuity, which is taxable at the applicable tax slab.

Contributions to NPS receive tax exemptions under Section 80C, Section 80CCC and
Section 80CCD (1) of Income Tax Act. Starting from 2016, an additional tax benefit of Rs.50,
000 under Section 80CCD (1b) is provided under NPS, which is over the Rs.1.5 lakh
exemption of Section 80C. Private fund managers are important parts of NPS. NPS is
considered one of the best tax saving instruments, after 40% of the corpus was made tax-
free at the time of maturity and it is ranked just below equity-linked savings scheme (ELSS).

The Number Of Pension Fund Managers (PFM) Has Increased To Seven In NPS:

 SBI Pension Funds

 LIC Pension Fund
 UTI Retirement Solutions

44
  HDFC Pension Fund
 ICICI Prudential Pension Fund
 Kotak Pension Fund
 Birla Sun Life Pension Management Ltd

SBI Pension Funds is the largest pension fund manager (PFM) in India and its assets under
management (AUM) level is Rs.61000crore.

At present, central government employees have no say in the matter of choice of fund
Manager or investment allocation in NPS, as both are decided by the government. All the
NPS contributions of Central government employees are being distributed evenly across
three public sector fund Managers, LIC Pension Fund, SBI Pension Fund and UTI
Retirement Solutions.

NPS Offers Two Types Of Accounts To Its Subscribers:

 Tier I: The primary account, which is a pension account which has restrictions on
withdrawals and utilization of accumulated corpus. All the tax breaks that NPS offers
are applicable only to Tier I accounts.

 Tier II: In order to introduce some liquidity to the scheme, the PFRDA allows for a
Tier II account where subscribers with pre-existing Tier I account can deposit and
withdrawn monies as and when they want. NPS Tier II is an investment account,
similar to a mutual fund in characteristics, but offers no Exit load, no commissions, no
charges, superior returns and tax benefits unlike MFs.[37]

The contribution to voluntary savings account (also called Tier-II account) can only be made
by the subscriber and not by any third party.

Tax Benefits:

Investment in NPS is eligible for tax benefits as follows:

 Up to Rs. 150,000 under Section 80CCD (1). The benefit is additionally capped at
10% of basic salary. The benefit under Section 80C, Section 80CCC and Section
80CCD (1) is capped at Rs.1, 50, 000.

 Contribution Up to Rs 50,000 under Section 80CCD (1B). This is over and above tax
benefit under Section 80CCD (1b).

 Employer co-contribution up to 10% of basic and DA without any upper cap in terms
of amount is tax free income in hands of employees under Section 80CCD (2).

45
UNIT-LINKED INSURANCE PLAN:
A Unit Linked Insurance Plan (ULIP) is a product offered by insurance companies that,
unlike a pure insurance policy, gives investors both insurance and investment under a single
integrated plan.

ULIPs is an another tax-saving investments, which not only provides the benefit of tax
exemption to the investors but also helps them to gain high returns on investment over a
long-term period.  Unlike before, the new age ULIPs launched by the insurance companies
comes with zero premium allocation charges and zero administration charges, which result
in better returns to the investors.

Moreover, with the combined benefit of insurance and investment, one can gain the benefit
on the taxability of income on the premium paid towards the policy under section 80C of the
Income Tax Act. The investment returns are also tax-exempted U/S 10(10D) of the IT Act.
ULIP plans come with a lock-in period of 5 years and offer the investors the ease of
investment. 

The investors also have the flexibility of investment as they can choose from the wide range
of fund options to invest in. Also, in ULIP, one can make a free switch between funds 3-4
times in a year. Even though ULIP is a lucrative option of tax-saving investment, the returns
on ULIPs entirely depend on the market performance of the fund.

Working Principle:

A Unit-Linked Insurance Plan is essentially a combination of insurance and an investment

vehicle. A portion of the premium paid by the policyholder is utilized to provide insurance
coverage to the policyholder and the remaining portion is invested in equity and debt
instruments. The aggregate premiums collected by the insurance company providing such
plans is pooled and invested in varying proportions of debt and equity securities in a similar
manner to mutual funds. Each policyholder has the option to select a personalized
investment mix based on his/her investment needs and risk appetite. Like mutual funds,
each policyholder's Unit-Linked Insurance Plan holds a certain number of fund units, each of
which has a net asset value (NAV) that is declared on a daily basis. The NAV is the value
upon which net rates of return on ULIPs are determined. The NAV varies from one ULIP to
another based on market conditions and fund performance.

Features:

A portion of premium goes towards mortality charges i.e. providing life cover. The remaining
portion gets invested into funds of the policyholder's choice. Invested funds continue to earn
market linked returns.

ULIP policy holders can make use of features such as top-up facilities, switching between
various funds during the tenure of the policy, reduce or increase the level of protection,
options to surrender, additional riders to enhance coverage and returns as well as tax
benefits.

46
Risks:

Since ULIP (Unit Linked Insurance Plan) returns are directly linked to market performance
and the investment risk in investment portfolio is borne entirely by the policy holder, one
need it to thoroughly understand the risks involved and one’s own risk absorption capacity
before deciding to invest in ULIPs.

Providers:

There are several public and private sector insurance providers that either operate solo or
have partnered with foreign insurance companies to sell unit linked insurance plans in India.
The public insurance providers include LIC of India, SBI Life and Canara while and some of
the private insurance providers include AEGON Life, Edelweiss Tokyo Life Insurance,
Reliance Life, ICICI Prudential, HDFC Life, Bajaj Allianz, Aviva Life Insurance,Max life
insurance , Kotak Mahindra Life, and DHFL PR America Life Insurance.

Tax benefits:

Investment in ULIPs is eligible for tax benefit up to a maximum of Rs 1.5 lakhs under Section
80C of the Income Tax Act.

Maturity proceeds are also exempt from income tax. There is a caveat. The Sum Assured or
the minimum death benefit must be at least 10 times the annual premium. If this condition is
not met, the benefit under Section 80C shall be capped at 10% of Sum Assured while the
maturity proceeds will not be exempt from income tax.

PUBLIC PROVIDENT FUND (INDIA):

The Public Provident Fund is a savings-cum-tax-saving instrument in India, introduced by
the National Savings Institute of the Ministry of Finance in 1968. The aim of the scheme is to
mobilize small savings by offering an investment with reasonable returns combined with
income tax benefits. The scheme is fully guaranteed by the Central Government. Balance in
PPF account is not subject to attachment under any order or decree of court. However,
Income Tax & other Government authorities can attach the account for recovering tax dues.

Public Provident Fund Scheme, 2019 introduced by the Government on 12.12.2019 and with
the new scheme the earlier Public Provident Fund Scheme, 1968 as amended from time to
time is rescinded.

PPF is a popular long-term tax saving in investments scheme, which incorporates the
feature of tax-saving investments in order to help the investors to create financial cushion
post-retirement. The interest rate on the PPF balance is reset on a quarterly basis.

In case of the implication of income tax, the Public Provident Fund enjoys an EEE status i.e.
exempt, exempt and exempt. This means that the contribution made towards the PPF
account, the interest earned and maturity proceeds are all tax exempted. Thus, it is

47
considered as one of the best tax-saving investments products. Even though the interest
rate on PPF keeps on changing the risk factor remains stable.

The public provident fund has a maturity period of 15 years that can be further extended for
5 years. A maximum of Rs1.5 lakh can be claimed for tax exemption under section 80C of
the Income Tax Act. As a government-backed savings scheme, Public Provident Fund is the
safest and ideal financial instrument which offers the benefit of return on investment over a
long-term period.

Partial withdrawals are allowed every year in PPF account, after the completion of 7 financial
years from the date of initiation. One can make a partial withdrawal, provided the withdrawal
amount should not exceed 50% of the balance. In a financial year, an individual can make
only one withdrawal.

As a government-initiated savings scheme, PPF offers the ease of investment as one can
start contributing in PPF account with a minimum amount of Rs.500 and can contribute up to
maximum Rs.1.5 lakh in a year. Moreover, the investors have the choice to contribute either
in monthly instalments or a lump-sum amount. However, the maximum contribution of 12
instalments is allowed in a year.

Eligibility:

Individuals who are residents of India are eligible to open their account under the Public
Provident Fund, and are entitled to tax-free returns.

Investment and Returns:

Investments in PPF are for a 15-Yr period and they provide regular savings by encouraging
that contributions are made every year. You can deposit a minimum of Rs 500 and a
maximum of Rs 1,50,000 in a financial year, in lump sum or in twelve instalments of any
amount in multiple of rupees five. Any deposits in excess of Rs. 1,50,000 in a financial year
will be refunded without interest and this amount cannot be considered for income tax
rebate. You can open a PPF A/c not only in your name but also in the name of your spouse
and children. However, please note that aggregate deposits of up to Rs 1,50,000 p.a. are
eligible for tax benefits under Section 80C.

The Ministry of Finance, Government of India announces the rate of interest for PPF account
every quarter. The interest rate compounded annually and paid on 31 March every year.
Interest is calculated on the lowest balance between the close of the fifth day and the last
day of every month.

Duration of Scheme:

Original duration is 15 years. Thereafter, on application by the subscriber, it can be extended

for 1 or more blocks of 5 years each.

48
Features:

The public provident fund is established by the central government. One can voluntarily open
an account with any nationalized bank, selected authorized private bank or post office. The
account can be opened in the name of individuals including minor.

 The minimum amount is ₹500 which can be deposited.

 The rate of interest at present is 7.1% per annum (as of April 2020).

 Interest received is tax free.

 The entire balance can be withdrawn on maturity.

 The maximum amount which can be deposited every year is ₹150,000 in an account
at present.

 The interest earned on the PPF subscription is compounded annually.

 All the balance that accumulates over time is exempted from wealth tax.

Nomination:

Nomination facility is available in the name of one or more persons. The shares of nominees
may also be defined by the subscriber.

PPF Tax Concessions:

Annual contributions qualify for tax deduction under Section 80C of income tax. The tax
benefit is capped at ₹1.5 lakhs per financial year.

PPF falls under EEE (Exempt, Exempt, Exempt) tax basket. Contribution to PPF account is
eligible for tax benefit under Section 80C of the Income Tax Act. Interest earned is exempt
from income tax and maturity proceeds are also exempt from tax.

49
SUKANYA SAMRIDDHI YOJANA:
Another tax saving investments option is Sukanya Samriddhi Yojana. It is a small deposit
scheme, which is particularly designed for the girl child. The plan is launched as part of ‘Beti
Bachao Beti Padhao’ campaign.  The Plan currently offers an interest rate of 8.1% and
provides the benefit of tax exemption.  As one of the best tax-saving investments, the tax
benefit offers under SSY are:

 The investments made in Sukanya Samriddhi Yojana are eligible for tax exemption
up to the maximum limit of Rs.1.5 lakh under section 80C of IT Act.

 The interest accrues against the SSY account gets compounded annually is also
eligible for tax exemption.

 The maturity proceeds and withdrawal amount are also tax exempted.

One can open a Sukanya Samriddhi Yojana after the birth of girl child till she turns 10. The
scheme remains operative for 21 years from the date of opening the account till the girl gets
married after she turns 18 years of age.  Currently, Sukanya Samriddhi Yojana offers the
highest tax-free return of 8.5%. As a long term investment option it also provides the benefit
of compounding.

Sukanya Samriddhi Yojana offers ease of investment to the investors. Moreover, the cost of
investment is also very affordable as one can make a minimum investment of Rs.250 (this
amount of earlier Rs.1000) and can invest up to maximum Rs.1.5 lakh in a financial year. 

As a great tax saving investment option, the plan ensures the safety of investment and
secures the future of the girl child.

Sukanya Samriddhi Account (Girl Child Prosperity Account) is a Government of India backed
saving scheme targeted at the parents of girl children. The scheme encourages parents to
build a fund for the future education and marriage expenses for their female child.

The scheme was launched by Prime Minister Narendra Modi on 22 January 2015 as a part
of the Beti Bachao, Beti Padhao campaign. The scheme currently provides an interest rate
of 7.6% (for July-September 2019 quarter) and tax benefits. The account can be opened at
any India Post office or branch of authorised commercial banks.

Tax Benefits:

At the time of launch, only the deposits in the account were eligible for tax deduction under
Section 80C of the Income Tax Act, which is ₹150,000 in 2015-16. However, Finance
Minister Arun Jaitley announced, during the 2015 Union Budget, tax exemption on the
interest from the account and on withdrawal from the fund after maturity, making the tax
benefits similar to that of the Public Provident Fund. These changes were applied
retrospectively from 1 April 2015. These benefits will be reassessed annually.

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SSY Closure on maturity Rules 2016:

 The Account shall mature on completion of a period of twenty-one years from the
date of its opening: Provided that the final closure in the Account may be permitted
before completion of such period of twenty one years, if the account holder, on an
application, makes a request for such premature closure for reasons of intended
marriage of the Account holder and on furnishing of age proof confirming that the
applicant will not be less than eighteen years of age on the date of marriage:
Provided that no such premature closure shall be made before one month preceding
the date of the marriage or after three months from the date of such marriage

 On maturity, the balance including interest outstanding in the Account shall be

payable to the Account holder, on an application by the Account holder for closure of
the Account, and on furnishing documentary proof of her identity, residence and
citizenship.

 No interest shall be payable once the Account completes twenty-one years from the
date of its opening.

NATIONAL SAVINGS CERTIFICATES (INDIA):

National Savings Certificates, popularly known as NSC, is an Indian Government savings
bond, primarily used for small savings and income tax saving investments in India. It is part
of the postal savings system of India Post.

This is a fixed income tax saving investment scheme, which can be opened with any post-
office. The National savings certificate ensures the safety of investment, as it is a
government-initiated savings scheme. The plan is specifically designed to encourage the
mid-income investors to make investment along with the benefit of taxability of income. 
Similar to bank FDs and PPF, the NSC is also considered as a low-risk tax saving
investment option, which offers guaranteed return on investment. Along with the benefit of
transparency and ease of investment the tax benefits offered under the policy are:

 As a government-initiated tax saving investment scheme, one can claim tax

deduction up to the maximum limit of Rs.1.5 lakh under Section 80C of IT Act.

 The interest earned on the certificates is added back to the initial investments and is
eligible for tax exemption.

 In the second year of investment in NSC account, the investors can claim a tax
deduction on NSC investment of that year, as well as the interest earned on the
previous year. This is because the interest earned is added to the investment and is
compounded annually.

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On maturity of this tax saving investments scheme, the individual will receive the entire
maturity amount. Since no TDS is applicable on NSC pay-outs; the investors are required to
pay the applicable tax on it. 

These can be purchased from any Post Office in India by an adult (either in his/her own
name or on behalf of a minor), a minor, a trust, and two adults jointly. These are issued for
five and ten year maturity and can be pledged to banks as collateral for availing loans. The
holder gets the tax benefit under Section 80C of Income Tax Act, 1961.

SENIOR CITIZEN SAVING SCHEME:

The SCSS is an effort made by the Government of India for the empowerment and financial
security of senior citizens. So, if you are over 60 years old, you are eligible to invest in this
scheme; while if you have attained 55 years of age and have retired under a voluntary
retirement scheme, you are also eligible to enjoy the benefits of this scheme subject to
certain conditions being fulfilled

Senior citizen Savings Scheme is a government-backed tax saving investments scheme,

which is specifically designed to provide financial safety to the senior citizens. Individuals
above 60 years are eligible to invest in SCSS.  Under this scheme, the investors are eligible
to make a one-time deposit of minimum Rs.1000 and can invest up to maximum Rs.15 lakh
(In case of joint holding) and Rs.9 lakh (in case of single holding). Thus, the cost of
investment in SCSS is very flexible.

Senior Citizen Savings Scheme comes with a lock-in period of 5 years. In SCSS the
interests are payable on a quarterly basis.  Under this tax saving investment, the deduction
of up to Rs1.5 lakhs is applicable for TDS under section 80 C of Income Tax Act.  As
compared to the other tax-saving investments, senior citizen saving scheme offers the
highest interest rate of 8.7% per annum and ensure a guaranteed return to the investors.
Besides this, the scheme also allows premature withdrawal in case of any financial
emergencies. 

Why should you invest in SCSS?

Investing in SCSS is a good opportunity for senior citizens above 60 years to make money.
This is an effective and long-term saving option which offers security and added features
that are usually associated with any government-sponsored savings or investment scheme.
These schemes are available through certified banks and post offices across India.

Eligibility for SCSS:

The following people/groups are eligible to opt for SCSS:

 Senior citizens of India aged 60 years or above.

 Retirees who have opted for the Voluntary Retirement Scheme (VRS) or
Superannuation in the age bracket 55-60. Here the investment has to be done within
a month of receiving the retirement benefits.
 Retired defence personnel with a minimum age of 50 years.
 HUFs and NRIs are not allowed to invest in this scheme.

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Benefits of Investing In SCSS:

 Safe and Reliable: This is an Indian government-sponsored investment scheme and

hence is considered to be one the safest and most reliable investment options.

 Simple and easy process: The process to open an SCSS account is simple and can
be opened at any authorized bank or any post office in India. It is also transferable
across India.

 Good returns: At 7.4% the return rate is very good as compared to a savings or FD
account.

 Nomination: Nomination facility is available at the time of opening an SCSS account

by means of submitting an application as part of Form C. This submission is also
accompanied by the passbook to the Branch.

 Tax benefits: Tax deduction of up to Rs.1.5 lakh can be claimed under Section 80C
of the Indian Tax Act, 1961.

 Flexible: The tenure of this investment scheme is flexible with an average tenure of 5
years which can be extended up to 3 additional years.

FIXED DEPOSIT:
A fixed deposit (FD) is a financial instrument provided by banks or NBFCs which provides
investors a higher rate of interest than a regular savings account, until the given maturity
date. It may or may not require the creation of a separate account. It is known as a term
deposit or time deposit in Canada, Australia, New Zealand, India. and The United States,
and as a bond in the United Kingdom and For a fixed deposit is that the money cannot be
withdrawn from the FD as compared to a recurring deposit or a demand deposit before
maturity. Some banks may offer additional services to FD holders such as loans against FD
certificates at competitive interest rates. It's important to note that banks may offer lesser
interest rates under uncertain economic conditions. The interest rate varies between 4 and
7.50 per cent. The tenure of an FD can vary from 7, 15 or 45 days to 1.5 years and can be
as high as 10 years.] These investments are safer than Post Office Schemes as they are
covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC). However,
DICGC guarantees amount up to ₹ 100000(about $1555) per depositor per bank. They also
offer income tax and wealth tax benefits.

53
Bank FDs are security deposits, which is similar to other guaranteed return investment
options. The only difference is that the tenure of investment applicable in Bank FDs is for 5
years. As a tax saving investments plans, the bank FD offers tax-free income.  This plan is
best suitable for individuals who have a low-risk appetite and want to save money over a
long-term period.  Bank FD offers guaranteed return on investment to the individuals and
also ensure the safety of investment as the amount invested get locked-in up to the entire
tenure.

In tax-saving investment FD, one can claim up to the maximum limit of Rs.1.5 lakh under
section 80C of the Income Tax Act. The banks set the interest rate of the fixed deposit
scheme which can be changed every quarter or financial year. Bank Fixed Deposit has
higher interest-earning potential as compared to the savings account and allows only one-
time lump-sum payment. As Bank FD has tenure of only 5 years, it does not allow premature
withdrawal.

Fixed deposits are a high-interest -yielding Term deposit and offered by banks in India. The
most popular form of Term deposits are Fixed Deposits, while other forms of term Deposits
are Recurring Deposit and Flexi Fixed Deposits (the latter is actually a combination of
Demand deposit and Fixed deposit)

Usually in India the interest on FDs is paid every three months from the date of the deposit.
Banks issue a separate receipt for every FD because each deposit is treated as a distinct
contract. This receipt is known as the Fixed Deposit Receipt (FDR) that has to be
surrendered to the bank at the time of renewal or encashment.

Many banks offer the facility of automatic renewal of FDs where the customers do give new
instructions for the matured deposit. On the date of maturity, such deposits are renewed for
a similar term as that of the original deposit at the rate prevailing on the date of renewal.

Income tax regulations require that FD maturity proceeds exceeding Rs 20,000 not to be
paid in cash. Repayment of such and larger deposits has to be either by " A/c payee”
crossed cheque in the name of the customer or by credit to the saving bank a/c or current
a/c of the customer.

Benefits of FD:

 Customers can avail loans against FDs up to 80 to 90 per cent of the value of
deposits. The rate of interest on the loan could be 1 to 2 per cent over the rate
offered on the deposit.

 Residents of India can open these accounts for a minimum of seven days.

 Investing in a fixed deposit earns you a higher interest rate than depositing your
money in a saving account.

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Taxability:

Tax is deducted by the banks on FDs if interest paid to a customer at any bank exceeds Rs.
10,000 in a financial year. This is applicable to both interest payable or reinvested per
customer. This is called Tax deducted at Source and is presently fixed at 10% of the interest.
With CBS banks can tally FD holding of a customer across various branches and TDS is
applied if interest exceeds Rs 10,000. Banks issue Form 16 A every quarter to the customer,
as a receipt for Tax Deducted at Source.[9]

However, tax on interest from fixed deposits is not 10%; it is applicable at the rate of tax slab
of the deposit holder. If any tax on Fixed Deposit interest is due after TDS, the holder is
expected to declare it in Income Tax returns and pay it by himself.

If the total income for a year does not fall within the overall taxable limits, customers can
submit a Form 15 G (below 60 years of age) or Form 15 H (above 60 years of age) to the
bank when starting the FD and at the start of every financial year to avoid TDS.

INSURANCE:
Insurance is a means of protection from financial loss. It is a form of risk management,
primarily used to hedge against the risk of a contingent or uncertain loss.

When you purchase an insurance policy, you are liable to pay its premium.

An entity which provides insurance is known as an insurer, insurance company, insurance

carrier or underwriter. A person or entity who buys insurance is known as an insured or as a
policyholder. The insurance transaction involves the insured assuming a guaranteed and
known relatively small loss in the form of payment to the insurer in exchange for the insurer's
promise to compensate the insured in the event of a covered loss. The loss may or may not
be financial, but it must be reducible to financial terms, and usually involves something in
which the insured has an insurable interest established by ownership, possession, or pre-
existing relationship.

The insured receives a contract, called the insurance policy, which details the conditions and
circumstances under which the insurer will compensate the insured. The amount of money
charged by the insurer to the policyholder for the coverage set forth in the insurance policy is
called the premium. If the insured experiences a loss which is potentially covered by the
insurance policy, the insured submits a claim to the insurer for processing by a claims
adjuster. The insurer may hedge its own risk by taking out reinsurance, whereby another
insurance company agrees to carry some of the risks, especially if the primary insurer
deems the risk too large for it to carry.

INSURANCE IN INDIA:

Insurance in India refers to the market for insurance in India which covers both the public
and private sector organisations. It is listed in the Constitution of India in the Seventh
Schedule as a Union List subject, meaning it can only be legislated by the Central
Government only.

55
The insurance sector has gone through a number of phases by allowing private companies
to solicit insurance and also allowing foreign direct investment. India allowed private
companies in insurance sector in 2000, setting a limit on FDI to 26%, which was increased to
49% in 2014.[1] Since the privatisation in 2001, the largest life-insurance company in India,
Life Insurance Corporation of India has seen its market share slowly slipping to private
giants like HDFC Life, ICICI Prudential Life Insurance and SBI Life Insurance Company.

LIFE INSURANCE:

Under Section 80C, premium paid for any life insurance policy taken qualifies for tax
deduction. Tax deduction is applicable only to the policyholder on account of insurance
premium paid for a particular financial year. Tax exemption u/s 80C (as well as u/s 80CCC &
80CCD) is up to a maximum amount of Rs.1,50,000. A minimum holding period of a tax
saving insurance policy, however, is defined as 2 years. 

Life insurance (or life assurance, especially in the Commonwealth of Nations) is a contract
between an insurance policy holder and an insurer or assurer, where the insurer promises to
pay a designated beneficiary a sum of money (the benefit) in exchange for a premium, upon
the death of an insured person (often the policy holder). Depending on the contract, other
events such as terminal illness or critical illness can also trigger payment. The policy holder
typically pays a premium, either regularly or as one lump sum. Other expenses, such as
funeral expenses, can also be included in the benefits.

Life policies are legal contracts and the terms of the contract describe the limitations of the
insured events. Specific exclusions are often written into the contract to limit the liability of
the insurer; common examples are claims relating to suicide, fraud, war, riot, and civil
commotion.

Modern life insurance bears some similarity to the asset management industry and life
insurers have diversified their products into retirement products such as annuities.

Life-based contracts tend to fall into two major categories:

 Protection policies: designed to provide a benefit, typically a lump sum payment, in

the event of a specified occurrence. A common form—more common in years past—
of a protection policy design is term insurance.
 Investment policies: the main objective of these policies is to facilitate the growth of
capital by regular or single premiums. Common forms (in the U.S.) are whole life,
universal life, and variable life policies.

MEDICAL INSURANCE:

Under section 80D, the investor can claim for tax deduction on purchase of medical
insurance policy as per Income Tax Act, 1961. More on this can be learnt from the income
tax government of India website. The premium should be payable by the policyholder,
his/her spouse, and/or parents and/or dependent children. The tax deductible is up to

56
Rs.25,000, whereas if premium is paid for senior citizens then the tax deductible is Rs.
30,000.

EMPLOYEES' PROVIDENT FUND ORGANISATION:

Employees’ Provident Fund or EPF is a popular savings scheme that has been introduced
by the EPFO under the supervision of the Government of India.

The savings scheme is directed towards the salaried-class to facilitate their habit of saving
money to build a substantial retirement corpus

The Employees' Provident Fund Organisation (abbreviated to EPFO), is an organization

tasked to assist the Central Board of Trustees, Employees' Provident Fund a statutory body
formed by the Employees' Provident Fund and Miscellaneous Provisions Act, 1952 and is
under the administrative control of the Ministry of Labour and Employment, Government of
India.

EPFO assists the Central Board in administering a compulsory contributory Provident Fund
Scheme, a Pension Scheme and an Insurance Scheme for the workforce engaged in the
organized sector in India. It is also the nodal agency for implementing Bilateral Social
Security Agreements with other countries on a reciprocal basis. The schemes cover Indian
workers as well as International workers (for countries with which bilateral agreements have
been signed. As of now 19 Social Security Agreements are operational). The EPFO's apex
decision making body is the Central Board of Trustees (CBT).

On 1 October 2014, Prime Minister of India Narendra Modi launched Universal Account
Number for Employees covered by EPFO to enable PF number portability.

What is the eligibility to become an EPF India Member?

The Employee Provident Fund is open for employees of both the Public and Private Sectors,
which means all employees can apply to become a member of EPF India.

Additionally, any organisation that employs at least 20 individuals is deemed liable to extend
benefits of EPF to its employees.

When an employee becomes an active member of the scheme, they are considered eligible
to avail several benefits in the form of Employees Provident Fund benefits, insurance
benefits and pension benefits.

Benefits of EPF India Scheme:

The employees’ provident fund scheme extends an array of benefits towards the EPF

employee members. It inculcates a sense of financial stability and security in them.

Here is a list of benefits that an EPF employee member can avail through the said scheme
are as follows:

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  Capital appreciation: The PF online scheme offers a pre-fixed interest on the
deposit held with the EPF India. Additionally, rewards extended at maturity further
ensure growth in the employees’ funds and accelerate capital appreciation.

 Corpus for Retirement: Around 8.33% of an employer’s contribution is directed

towards the Employee Pension Scheme. In the long run, the sum deposited towards
the employee provident fund helps to build a healthy retirement corpus. Such a
corpus would extend a sense of financial security and independence to them after
retirement.

 Emergency Corpus: Uncertainties are a part of life. Therefore, being financially

prepared to face such unwarranted situations is the best an individual can do deal
with exigencies. An EPF fund acts as an emergency corpus when an individual
requires emergency funds.

 Tax-saving: Under Section 80C of the Indian Income Tax Act, en employee’s
contribution towards their PF account is deemed eligible for tax exemption.
Moreover, earnings generated through EPF scheme are exempted from taxes. Such
exemption can be availed up to a limit of Rs. 1.5 Lakh.

The tax benefits applicable to the Employees Provident Fund scheme ensure higher

earnings to the members. It further improves savings and an individual’s purchasing power
in the long-term.

ADDITIONAL TAX-SAVING INVESTMENTS BEYOND SECTION 80C:

Apart from tax deduction under section 80C, there is various tax-saving investments, which
helps to save on taxes.

 One can gain tax benefit on the premium paid towards health insurance and home
loan interest.
 A person can claim deduction up to Rs.25, 000 on the premium paid towards health
insurance under section 80D of Income Tax Act.
 Under Section 80EE of Income Tax Act, one can claim deduction up to Rs.50, 000 on
home loan interest.

The home loan also helps in reducing the taxable income as the principal amount of the
home loan can be claimed U/S 80C up to Rs.1.5 lakh and the interest amount can be
claimed as deduction from income from house property.

58
TAX BENEFITS ON CHILDREN EDUCATION ALLOWANCE, TUITION
FEES & SCHOOL FEES:
The government of India allows tax breaks and income tax exemption on the tuition fees
paid by the individual for their children. For some salaried individuals, payment of education
or school tuition fees for children can be part of their salary structure. Let’s also talk about
the additional deductions allowed under section 80C for the same.

Exemption for Children’s Education and Hostel Expenditure:

Following exemption is provided to an individual employed in India:

 Children’s Education Allowance: INR 100 per month per child up to a maximum of 2
children.

 Hostel Expenditure Allowance: INR 300 per month per child up to a maximum of 2
children.

Deduction of Payment Made Towards Tuition Fees under Section 80C:

A parent can claim a deduction on the amount paid as tuition fees to a university, college,
school or any other educational institution. Other components of fees like development fees
and transport fees are not eligible for deduction under Section 80C.

The maximum deduction on payments made towards tuition fee can be claimed for up to Rs
1.5 lakh together with the deduction with respect to insurance, provident fund, pension etc. in
a financial year.

Eligibility of Tuition Fees for Claiming Deductions under Section 80C:

Persons paying any sum/ fees towards the education of their children can claim tax
deduction under Section 80C, subject to satisfaction of certain conditions which have been
enumerated below:

 Who is eligible: This deduction is available only to an individual parent or guardian or

sponsor.

 How many Children?: The deduction is available to a maximum of 2 children for each
individual. Therefore, a maximum of 4 children’s deduction can be claimed, i.e. 2 by
each parent.

 Maximum Limit: Each parent can claim a deduction of up to Rs 1.50 lakh separately
every financial year. Please note that the aggregate amount of deduction under
section 80C, 80CCC and 80CCD shall not exceed INR 1,50,000 for the individual
parent.

59
  Deduction is available irrespective of the class attended by the child. However, the
institution, college or university must be situated in India, even if affiliated to a foreign
university.

 The deduction is available only for full-time education courses that include nursery
school, crèches and play schools.
 The deduction is available only on actual payment and not on payable basis. For
instance, if the fee is paid by the parent in April 2019 for the quarter ending March
2019 then the fee paid will be eligible for a deduction in the FY 2019-20.

 The fee can also be claimed by an Unmarried person/ divorced parent.

 An adopted Child’s school fees are also eligible for deduction.

Non-Eligibility of Payments towards Tuition Fees:

 Deduction is not available for payment made towards Development fees, donation or
charity, Private Coaching centre, other expenses such as hostel expenses, mess
charges, library charges or similar payments.
 Deduction is not available for payment made towards part-time courses.

 Deduction is not available towards payment made for school fees of self, spouse,
brother or sister, father or mother or any other relative.

 Fees paid to the foreign universities situated outside the India are not eligible for this
deduction.

How to claim tax exemption for Children’s education allowance (u/s 10(14) and the
deduction for payments made towards tuition fees under Section 80C:

Submit the receipt issued by the schools for the payment made during the financial year to
their employer. They must also show it in form 12BB before submitting the proofs of
investments at the end of the financial year.

For an individual other than a salaried employee, you will have to claim the deduction under
VI-A schedule by showing the amount of fees paid under section 80C on the income tax
return.

It is important to mention here that children’s education allowance i.e. part of the salary
structure, and fees paid towards tuition fees of the Children are both different deductions.
These, therefore, can be claimed separately within the limit prescribed (as mentioned above)
as per the provisions of the Indian Income Tax Act, 1961.

Home Loan Tax Benefit:

Buying your own house is dream come true for everyone. The Indian government has
always shown a great inclination to encourage citizens to invest in a house. This is why a

60
home loan is eligible for tax deduction under section 80C. And when you buy a house on a
home loan, it comes with multiple tax benefits too that significantly reduce your tax outgo.
Many schemes like Pradhan Mantri Jan Dhan Yojana are flashing green light on the Indian
housing sector by striving to bring down the issues of affordability and accessibility. In this
article, we will discuss more home loan tax benefit.

1. Deduction for Interest Paid on Housing Loan

2. Deduction in respect of interest paid towards home loan during pre-construction
period
3. Deduction on Principal repayment
4. Deduction For Stamp Duty and Registration Charges
5. Additional deduction under section 80EE
6. Additional deduction under section 80EEA
7. Deduction for Joint Home Loan

 Deduction For Interest Paid On Housing Loan:

A home loan must be taken for the purchase/construction of a house and the
construction of the house must be completed within 5 years from the end of financial
year in which loan was taken. If you are paying EMI for the housing loan, it has two
components – interest payment and principal repayment. The interest portion of the
EMI paid for the year can be claimed as a deduction from your total income up to a
maximum of Rs.2 lakh under Section 24. From Assessment Year 2018-19 onwards,
the maximum deduction for interest paid on Self Occupied house property is Rs.2
Lakh. For let out property, there is no upper limit for claiming interest. However, the
overall loss one can claim under the head of House Property is restricted to Rs.2 lakh
only. This Deduction can be claimed from the year in which construction of the house
is completed.

 Deduction In Respect Of Interest Paid Towards Home Loan During Pre-

Construction Period:
Say, you bought an under-construction property and have not moved in yet. But you
are paying the EMIs. In this case, your eligibility to claim interest on the home loan as
a deduction begins only upon completion of construction or you buy a fully
constructed property. So does this mean you would not enjoy any tax benefits on the
interest paid during the period falling between the borrowing of loan and completion
of construction? No. Let’s understand why. The income tax law provides for the claim
of such interest also, called the pre-construction interest, as a deduction in five equal
instalments starting from the year in which the property is acquired or construction is
completed, over and above the deduction you are otherwise eligible to claim from
your house property income. However, the maximum eligibility remains capped at
Rs.2 lakh.

 Deduction on Principal Repayment:

The Principal portion of the EMI paid for the year is allowed as deduction under
Section 80C. The maximum amount that can be claimed is up to Rs.1.5 lakh. But to
claim this deduction, the house property should not be sold within 5 years of

61
 possession. Otherwise, the deduction claimed earlier will be added back to your
income in the year of sale.

 Deduction for Stamp Duty and Registration Charges:

Besides claiming the deduction for principal repayment, a deduction for stamp duty
and registration charges can also be claimed u/s 80C but within the overall limit of
Rs.1.5 lakhs. However, it can be claimed only in the year in which these expenses
are incurred.

 Additional Deduction under Section 80EE:

Additional deduction under Section 80EE is allowed to the home buyers for maximum
up to Rs.50,000. To claim this deduction, the amount of loan taken should be Rs.35
lakhs or less and the value of the property does not exceed Rs.50 lakhs. The loan
must have been sanctioned between 1st April 2016 to 31st March 2017. And on the
date of sanction of loan, individual does not own any other house. Section 80EE has
been reintroduced effective from FY 2016-17. Earlier the deduction allowed under
Sec 80EE was available for 2 years FY 2013-14 and FY 2014-15 only.

 Additional Deduction under Section 80EEA:

The budget 2019 has introduced additional deduction under Section 80EEA for home
buyers for maximum up to Rs.1,50,000. To claim this deduction, the stamp value of
the property does not exceed Rs.45 lakhs. The loan must have been sanctioned
between 1 April 2019 to 31 March 2020. And on the date of sanction of loan,
individual does not own any other house. The individual should not also be eligible to
claim deduction under section 80EE.

 Deduction for Joint Home Loan:

If the loan is taken jointly, then each of the loan holders can claim a deduction for
home loan interest up to Rs.2 lakh each and principal repayment u/s 80C up to
Rs.1.5 lakh each in their individual tax returns. To claim this deduction, they should
also be co-owners of the property taken on loan. So, loan taken jointly with your
family can help you claim a larger tax benefit.

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 CONCLUSION
Investment in tax saving now represents perhaps most appropriate investment opportunity
for most investor. As financial market become sophisticated and complex, investor needs a
financial intermediary who provides the required knowledge and professional expertise on
successful investing. As the investor always try to maximise the returns and minimise the
risk. The fund industry has already overtaken the banking industry, more funds to tax saving
investments are tax saver fund, public provident fund, and equity linked saving scheme etc.
being under the funds management, than deposited with banks with the emergence of tough
competition in the sector of fund they also started schemes like senior citizen saving
scheme, Sukanya Samriddhi Yojana, national pension scheme etc. which cater to the
requirement of the particular investor. Risk taken of getting capital appreciation should invest
in growth, equity schemes. Investors who are in need of regular income should invest in
income plans. They have also implemented more schemes based on education, insurance
on health, life and etc., and also home loans on various interest rate to benefit investors. A
tax saving is an investment as a primary tool in investors life. A tax planning should be start
at every financial year and tax saving, planning and management is an effective tool for tax
saver. This in turn has not only protected money but thus, also helped to growth those
investments. This has also instilled greater confidence among fund investors who are
investing more in to the market of funds and schemes. To prevent the erosion of the total
income generated that provides the benefits thereby, significantly investment portfolio in this
country as all individuals want to avail this advantage.

There are multiple ways you can save tax; it is wise to select an option that offers you dual
benefits of tax saving as well as wealth creation. Remember to plan your taxes in advance,
seek the best way to optimize you taxes and utilise the taxes limit completely.

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 RECOMMENDATION
The Income Tax Act came into effect in 1961. The Income Tax Act, 1961 has various
sections tax payer can reduce their tax outgo every year. To reduce the income tax burden,
an investor tax payer can go for tax saving investments and claim deduction for the same as
per Income Tax Act, 1961. As a tax payer; you may have multiple sources of income during
your life. Before choosing a tax saving instruments, it is important to factor in the risk level,
lock in period, liquidity and returns. The best time to start planning a tax saving investment is
at the beginning of the financial year. The most tax saving options available to individuals
and HUFS in India are under section 80C of the income tax act. Barring section 80C, there
are various sections of the income tax act available for investor for significantly reduce their
tax burden. Before investing funds the investor can aware about risk factors.

In tax saving investment the risk is classified in three factors:

 High risk appetite

 Moderate risk appetite
 Low risk appetite
Aggressive investors are investing in high risk appetite for high returns in addition of
tax benefits. Aggressive investor invests in mutual funds, Equity Linked Saving
Scheme (ELSS). Moderate risk investor can invest their funds in PPF or in tax saving
fixed deposits. The moderate risk investor gets benefits under section 80C for
balance risk and returns. Low risk investors are very cautious about their money.
They can invest in saving fixed deposits.

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 LIMITATIONS
The Income Tax Act, 1961 has a various sections tax payer can use to reduce their tax
outgo every year. However every section comes with a maximum investment amount set by
the government. Income Tax Act, 1961 sets a certain amount of limit to tax saver for saving
money. Any individual or HUF can get tax deduction up to the limit of Rs.1.5 lakh per
financial year under section 80C of the Income Tax Act 1961 and it is allied sections such as
80CCC and 80CCD. This deduction is not available to partnerships, companies, and other
corporate bodies. Tax payers have to claim this deduction in his/her in income tax return
(ITR). An investor or tax payer can save money or tax as per the limitation of Income Tax
Act.

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 BIBLIOGRAPHY
Web Sites:

 https://www.financialexpress.com/money/income-tax/14-tax-saving-investments-beyond-
section-80c-limit/1905258/
 https://www.policybazaar.com/income-tax/tax-saving-investments/
 https://cleartax.in/s/80c-deductions
 https://www.investopedia.com/terms/t/tax-planning.asp#:~:text=Tax%20planning%20is
%20the%20analysis,most%20tax%2Defficient%20manner%20possible.
 https://en.wikipedia.org/wiki/Investment
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 https://en.wikipedia.org/wiki/Tax
 https://www.bajajcapital.com/tax-saving-solutions/tax-saving-products.aspx
 https://www.researchgate.net/publication/325060456_Income_Tax_Planning_A_Study_of_
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 https://www.researchgate.net/publication/330933312_Tax_Saving_Instruments_of_Income
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 https://economictimes.indiatimes.com/wealth/tax/all-the-investments-expenditures-you-
can-claim-as-tax-break-under-section-80c/articleshow/53224055.cms

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