Strike the right balance among tax-saving tools

Written by VineetAgarwal | Vineet Agarwal | Updated: Dec 13 2013, 08:17am hrs
It is that time of the year when employers ask employees for their rent receipts and investment details. These are required to compute their current years tax liability.

In a rush to make tax-beneficial investments, people usually forget other aspects. Here are some things to keep in mind so that the objective of maximising returns while saving taxes is met.

Bank deposits

Fixed deposits with scheduled banks are one of the most popular tax-saving investment avenues providing secured returns. Such term deposits have a maturity of five years or more and are eligible for deduction under Section 80C of the IT Act.

Provident fund

Employees provident fund is a popular instrument to secure financial needs after retirement. Investments in provident fund are eligible for tax deductions. Many salaried individuals also invest in public provident fund as the returns are tax-free.

Equity investments

Investments in some equity instruments can be claimed for tax deduction. One of the most popular equity instruments is the equity-linked savings scheme (elss) provided by mutual funds. Such instruments have a lock-in of three years, and individuals with a high risk appetite may consider this option for higher returns.

Gold & silver

Investing in these precious metals may not provide any tax exemption, but it is a good way to diversify your portfolio. These commodities are always in limited supply, and investing in them can help you balance your portfolio.

Post office schemes

A number of investment avenues are offered by post offices, such as National Savings Certificates, Senior Citizen Savings Scheme and Post Office five-year time deposits and recurring deposits. These schemes are also popular for tax deductions.

Life insurance

There are many kinds of life insurance policies, such as term plans, money-back, market-linked and endowment plans.

Although a term plan only provides life cover, money-back and endowment plans offer investment benefits along with insurance. The premium paid for insurance policies is eligible for tax deductions, subject to conditions.

Deductions for expenses

The IT Act also provides deductions for specific expenses. Such deductions include tuition fees, home loan repayments, etc. Tuition fees paid by an individual for full-time education of two children in any Indian university, college, school or educational institution are eligible for tax deduction.

Investment options can include property and shares too. However, one should consider all the options and strike the right balance in terms of returns, risk and tax benefits. Never put all your eggs in the same basket.

The author is a director in KPMG. The views expressed

are personal.