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Tax system in India

Indian income tax laws have various rules and regulations and are amended from time to time Hence, understanding these laws is complex and one might ultimately end up paying more tax There are various exemptions prescribed for certain investment options in the tax laws prevailing in India To save money tax payers should know income tax laws thoroughly One must also know the best available investment options available & choose the one

Present Income tax slabs

Debt Investments covered:

Mutual funds Saving Schemes
ELSS Post office Savings scheme Bonds Company Fixed deposits

Fixed Deposits Certificate of Deposit Some Other Financial Instruments


Mutual Funds
Collects the money of a large number of investors The money that is collected is then used by the fund manager to buy securities like bonds and stocks The securities that are purchased are called the portfolio of the fund The different kinds of mutual funds in India are Closed- End Funds, Large Cap Funds, International Mutual Funds, Value Funds, and Tax Saving Funds Offers several benefits to an investor such as:
Potential return Liquidity Transparency Income growth Good post tax return &

Tax Benefits
All dividends, declared by mutual funds are taxfree in hands of the investor The mutual fund has to pay a dividend distribution tax of 12.5% The amount invested in tax-saving is eligible for deduction u/s 80C The aggregate amount deductible under this section CANNOT exceed Rs 100,000 Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961

Saving Schemes
Various saving schemes are framed by Central Government under:
Government Savings Bank Act, 1873 Government Saving Certificates Act, 1959 Public Provident Fund Act, 1968

Risk Free Investment as Small Savings Schemes are fully secured by GOI High rate of interest Invest Rs. 5000/- or more in any Small Savings Scheme to get Lucky Coupon and win prizes. Tax on these prizes will be paid by the State Govt. Nomination facility

Following are the saving schemes in India

Equity Linked Savings Scheme Post Office Saving Scheme Bonds In India Company Fixed Deposits

Equity-Linked Savings Schemes (ELSS)

They have a lock-in period which is generally of 3 years As a result of this, the manager of the fund is concerned only about the long term goals Are suitable for those investors who want to increase their investments and also want to benefit from the rebates in taxes The dividends that are earned in Tax Saving Funds in India are tax free Can invest a maximum amount of Rs. 10,000 per annum.

Popular Tax Saving Funds (ELSS)

Franklin India Tax Shield HDFC Tax Saver Sundaram Tax Saver HDFC Long Term Advantage Prudential ICICI Tax Plan Birla Equity Plan UTI Equity Tax Savings Tata Tax Saving Fund Magnum Tax Gain


Post office saving scheme

Provide substantially higher rates of interest Pose relatively lesser risks of suffering losses There are numerous Post Office Saving schemes like:
Post Office Time Deposits Deposit Scheme for Retiring Government Employees Post Office Monthly Income Scheme Post Office Recurring Deposits Deposit Scheme for Retiring Employees of Public Sector Companies National Savings Scheme National Savings Certificates Postal Life Insurance



Interest Rates



Tax Rebate

Post Office Savings Account 5-year post office recurring deposit A/c

Not fixed

Min: Rs. 50 Max: 1 lakh

Interest is Tax free

7.5% compounded Quarterly

5 years

Min: Rs.10 pm or multiples of Rs.5 Max: No Limit

No Tax Rebate

Post Office Time Deposit Account

6.5% 7.25% 7.5%

1 year
2 years 3 years 5 years 6 years

Min: Rs. 200 & its multiples thereoff Max: No Limit

Investment qualifies for deduction. Interest is Tax free

Interest is Tax free

Post Office Monthly Income A/c


Min: Rs.1500 pm or multiples of it. Max: Rs. 4.5 lakhs



Interest Rates 8% Compounded



Tax Rebate

15 year PPF Account

15 years

Min: Rs. 500 in 1 year Max: 70000 in 1 year

Investment qualifies for deduction. Interest is Tax free No Tax Rebate

Kisan Vikas Patra

8.4% Compounded Yearly

No Limits, Denominations: Rs 100, Rs 500, Rs 1000 Rs 5000, Rs 10000, Rs 50000 Min: Rs. 100 Max: No Limit

National Savings Certificates

8% p.a Compounded 1/2yearly but payable after maturity 9%

6 years

Investment as well as the interest deemed to be re-invested Investment qualifies for deduction 13

Senior Citizens Savings Scheme

5 years

Min: Rs 1000 Max: Rs 1500000

A Bond is a loan given by the buyer to the issuer of the instrument Bonds can be issued by companies, financial institutions, or even the government Tax-saving bonds are designed to partially or fully release a bond holder from the burden of taxes Bonds can be broadly classified into:
Tax-Saving Bonds Regular Income Bonds

Tax-Saving Bonds Issued by RBI

The Reserve Bank of India offers a unique tax saving bond named as the 6.5% Savings Bonds, 2003 Tenure is 5 years The bond is endowed with the facility of interest payment on a half yearly basis The maximum limit of investment on the bond has not been fixed 6.5% Savings Bonds, 2003 are of 2 types:
6.5% Savings Bonds Cumulative bonds 6.5 % Savings Bonds Non-cumulative bonds

The other commercial as well as private sector banks which provide the 6.5 % Savings Bonds, 2003 are:
Central Bank of India UTI Bank Ltd. Dena bank HDFC Punjab National Bank ICICI Bank of Maharashtra IDBI Indian Overseas Bank Canara Bank Bank of Baroda Indian Bank Union Bank Syndicate Bank Allahabad Bank


Bonds issued by Commercial & Private sector banks

Commercial & private sector banks offer 8% Savings Bonds, 2003 The term of the 8% Savings Bonds, 2003 is 6 years The amount of interest on the 8% Savings Bonds is paid off on a half-yearly basis


Company Fixed deposits

Company Deposits are simply nothing but fixed deposits in companies Earns a fixed rate of return over a period of time If the interest income is less than Rs.5000 in one financial year, then NO TDS


Fixed Deposits
Fixed Deposit for 5 years in banks is allowed as a tax saving scheme by the government The maximum amount eligible under a tax saver fixed deposit is Rs. 100,000 for a financial year Other fixed deposits have no tax rebate and the income has to be added as other sources of incomes But assesse has the option to pay the tax on a yearly basis or together after maturity


Top 5 Tax Savings Fixed Deposits

Following are the top 5 Tax Savings Fixed Deposits

The rates are as on February 2011


Certificate of Deposit
CDs are not glamorous investments but are stable ones Investing money for a fixed period of time while receiving interest

Tax Benefits
Deducting Interest Delayed Tax Tax-deferred


Other Financial Instruments

Life insurance policy or Unit-Linked Insurance Plan (ULIP) Retirement benefit plan which is offered by mutual funds Approved superannuation fund Pension policies provided by insurance companies Bank fixed deposits A Provident Fund
Public Provident Fund (PPF) Employee Provident Fund (EPF)

Bibliography http:/
Preksha Shah 49 Jigar Jain 24 Harsh Thariani 57 Juhi Bulchandani 9 Dhaval Manek 31 Anushri Jain 20