Beware the taxes of March

NEW DELHI: Money saved is money earned — especially via tax savings as March is fast slipping away.
Ideally, tax planning should be done at the beginning of the fiscal but most of us wake up very late. So, here are some last-minute tips.
To begin with, tax benefits through savings are mostly for people earning Rs 50,000 to Rs 5 lakh a year. Beyond Rs 5 lakh income, there are hardly any options to save tax except through pension and mediclaim policies.You could buy a house, but that won’t help you save any taxes this year because your payments will begin only next month, which is effectively the new fiscal.
Tax consultants like Subhash Lakhotia believe that savings through pension plans give the maximum benefit, besides securing your future, although they have some limitations.
For example, if you earn Rs 2 lakh a year and invest Rs 10,000 in Public Provident Fund (PPF), you will save Rs 1,500 at 15 per cent rebate as per the rules.
But if you invest in a pension plan, the entire amount will be taken out from your income while computing tax.
This will save Rs 3,000—less 30%, which is your tax rate. But, there is a ceiling. One gets benefit of up to Rs 10,000 only, under section 80ccc that covers pension plans.
If your income is less than Rs 1.5 lakh a year, there won’t be any difference whether you invest in a pension plan or in PPF. The reason: Your tax rate is 20% and so your permissible rebate under 80ccc for pension plan is 20%. Similarly, for PPF too the rebate is 20% for your bracket.
You can similarly save up to Rs 3,000 by investing in mediclaim policies under section 80D, up to Rs 10,000 a year. But there are no returns on this investment, only tax saving and security.
As for returns, PPF gives 8% (tax free) annually. Add tax benefit, and the return goes up to 10.5% for those earning between Rs 1.5 lakh and Rs 5 lakh a year. For those earning below Rs 1.5 lakh, the return works out to be 11.5%. (Those earning above Rs 5 lakh do not get any tax benefit from PPF.)
Returns of 10.5-11.5% are very good, compared with 6% returns on FDs. Besides, PPF is a secure investment, although it requires a long lock in of 15 years. Other schemes like NSC and post office savings also give similar returns with shorter lock-ins of 6-8 years, but the returns are not tax free.
As for private pension plans, a senior officials at Birla Sunlife says it is the best option for 25-35 year age group. Part of the premium paid goes into stock markets, which over long-term gives good returns.
But the question is how much can you save?
The maximum tax saving under section 88 can be up to Rs 20,000—depending on the income and tax bracket one falls in—but require investments of Rs 1 lakh. One can invest upto Rs 70,000 in investment schemes like PPF, NSC, life insurance and infrastructure bonds. Besides, you can invest up to Rs 30,000 in infrastructure bonds.