| New Tax-Saving Rules for
You have until March 31, 2006 to invest in income tax-saving schemes
to lower your tax liability for the current financial year. But
it's worth thinking about such matters now, especially since the
rules have been changed. Indeed, thanks to these changes, the
same income attracts less tax this year than in '04-05.
As in the past, you can save tax by investing in schemes such
as the Public Provident Fund, life insurance, National Savings
Certificates (NSC), infrastructure bonds and equity-linked tax-saving
schemes of mutual funds (ELSS). But now everyone benefits from
these schemes; earlier only those with a taxable income under
Rs5 lakhs did so.
The investment limits for infrastructure bonds and ELSS have also
been substantially raised. You can now invest upto Rs1 lakh in
either scheme. With ELSS this can make a lot of difference because
the returns you get from investing in such schemes (but not, of
course, the tax benefit) could be much greater than from other
options such as PPF, NSC or infrastructure bonds.
Finally, taxmen no longer insist that the money you invest in
these schemes be earned during this financial year-you can use
money that you've earned in the past too.
May Be Gold
As a group, equity-linked tax-saving schemes of mutual funds (ELSS)
have given an overall 78% return over the last 12 months, with
the three best-performing schemes gaining between 111 and 151%.
Experts cite two reasons for this: a rapidly rising stock market;
and a three-year lock-in period, which enables better management.
Fund officials can ignore short-term fluctuations and plan for
the longer term-always advisable with equities. As March approaches,
you'll see several new schemes being launched. Should you opt
for one of them? Nobody can predict how a new scheme will perform.
So it's probably wiser to choose an already established scheme
with a good track record. However, there's no guarantee that future
returns will be as good.
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