Tax-planning tips for 2007-08

Wondering how to plan your taxes in the new financial year? Do you want your tax-planning to generate returns as well? Want to know about short-term investments that also offer you rebate on income tax? While tax can be saved on investments like insurance, mutual fund, fixed deposit and various other debt schemes, are you confused about the ideal mix? Are unit linked insurance plans bad investment options? Are their returns not as good as other insurance products? Get Ahead tax expert Mahesh Padmanabhan answered tax and investment-related queries in a chat with Get Ahead readers on April 25. For those of you who missed the chat, here is the transcript. Paul asked, I want to know if LTA is allowed to teachers also. How much value is it? Mahesh Padmanabhan answers, LTA or leave travel assistance is merely a component of your salary structure and is general in nature. There is nothing restrictive in its use in a segment manner for a certain class of employees. Yes, the basic condition, however, is that there should be an employer-employee relationship. phanichaganti asked, Hi my age is 27. Right now division of my tax savings is (Rs 100,000= Rs 25,000 (FD 5yrs) + Rs 28,000 (EPF) + Rs 30,000 (NSC) + remaining (MF). Is my way of investing good/bad/moderate? Mahesh Padmanabhan answers, From your investment mix, you seem to be a very risk averse person as the debt component is very high as compared to the equity component. Investment in debt securities is not a bad option but you need to consider the tax implication of the interest, liquidity of such investment, pre and post tax yield (returns), etc before deciding whether this investment mix is suitable for the growth of your wealth. Historically, equities have always scored higher in the long run. Krishna asked, Hi Mahesh, I am working in one of the company in a European country through business VISA through their branch in delhi, and my gross salary is Rs 10 lakhs. Please suggest how much I could invest for tax saving? Already I have been paying Rs 25,000 per annum through LIC. Also take into consideration that from April �08 I may go permanently to Europe through work permit visa. Please give your suggestions on the same. Thank you very much. Mahesh Padmanabhan answers, I guess you are looking at a short-term fix for your current tax problem. In this case you can invest in ELSS (equity linked saving scheme), which has a lock-in period of about three years. You can also put your money in a five year FD. In case of life insurance, you are seriously advised to consult a financial/ insurance advisor to determine your insurance needs and accordingly go about putting your money in such insurance without taking a look at the tax perspective. RAGHAVENDRA asked, HI RAGHU HERE, AM EARNING RS 35K PER MONTH IN HAND, AND REQUEST YOU TO SUGGEST ME A GOOD INVESTMENT PLAN. Mahesh Padmanabhan answers, Raghu, there is no single best plan available on a common platform; it all boils down to individual financial perspectives. However, if you are averse to taking risks, then go for debt tax savings instruments such as NSC, PPF, eligible FD etc or else go for ELSS mutual funds, ULIP schemes, etc. Additionally, you would also need to consider your long-term planning for various other aspects such as home acquisition, etc. sandhya asked, Hi ,My take home salary is Rs 15 k per month. Please let me know the best investment opportunities. I have already invested in FDs, RDs (recurring deposit) and NSC. Mahesh Padmanabhan answers, In case your salary structure is absolutely unfriendly and the entire Rs 1.8 lakhs salary is taxable, then you need to put aside at least Rs 35,000 in certain tax saving investments to bring your tax liability to zero. Generally, RDs are not tax saving instruments and you will need to ensure that the FD that you have created is stamped by the bank for being eligible for tax savings purpose. NSC is a tax saving instrument. dip asked, Sir, I have invested around Rs 54,000 in 2 ULIP funds , ICICI prudential (Rs 24,000) and AVIVA life bond 5 (Rs 30,000). I know that investing a huge chunk of money in ULIPs was not a good idea but do you think I should persist with these investments. Mahesh Padmanabhan answers, If someone has told you that investing in ULIP is bad, then the person is absolutely wrong. Yes, if you have done so without proper consultation with an advisor, then probably you might get involved with the wrong insurance company or the wrong plan. Generally all insurance companies generate reasonable returns on ULIPs but the cost varies between companies, making the returns relatively up or down in comparison to peer companies. What you need to ensure is that you learn about the scheme you have invested in and see if you can leverage by moving from debt oriented fund to equity oriented fund or vice versa as per your risk profile. Also, if you are unhappy with the scheme available as such then look at the escape route to get out of the insurance plan with as minimum damage as possible. Ravindra asked, Hi mahesh, I want to know about the investments that are short in time and also provide income tax rebate? Mahesh Padmanabhan answers, The lowest time frame that you can probably look at is three years of lock-in. ELSS schemes, infrastructure bonds, etc, carry such time frame. But my sincere advice is do not be shortsighted in investing; the deductions that are provided are to promote retirement funding or to provide long term financial security/ means to individuals. Do not liquidate these investments unless the funds are required badly. Also, invest your money with a proper strategy in mind after consulting a financial planner. ARPAN asked, What is an ELSS scheme? Mahesh Padmanabhan answers, ELSS schemes are mutual fund schemes specifically aimed at tax investing with a lock in time frame of 3 years. These are essentially same as the regular mutual fund investments but are more focused and generally yield consistent returns. However, these are also subject to the vagaries of the stock market