Last-minute options to save tax

  Another four days are left for the current financial year to end and you have just that many days to put money in a select few products to save some taxes. Some of the popular options are equity-linked savings schemes (ELSS), pension funds, insurance policies and public provident fund (PPF). Your financial advisor/planner can help you invest in the product which is best suited for you, helping you save up to Rs 1 lakh this year, and also an additional Rs 20,000 through infrastructure bonds. 

    ELSS offered by mutual funds comes with a three year lock-in, which means you cannot withdraw the money invested for the next three years. Similarly, other investment products that offer you tax rebates also come with lock-in provisions. For example, in PPF you can withdraw only after seven years from the date of investment. 

You can save Rs 6,180 

The Budget in February 2010 had given taxpayers a new option to save up to Rs 20,000 every year by investing in notified bonds of infrastructure finance companies. Popularly called infrastructure bonds, the last of such bond offerings, from IDFC, is now open and will close on Friday. If you have not already invested in these bonds, you can put Rs 20,000 in these bonds and claim tax deduction of up to Rs 6,180 for the current financial year, which is for assessment year 2012-13. 

    Interestingly, this year's Budget has not specifically spelt out about the continuation of infra bonds for next fiscal, so there is some ambiguity whether the similar bonds will be available next year. 

    The ground rule for investing in infra bonds is first to check the credit ratings for these instruments, assigned by the ratings agencies. Higher a company's/bond's ratings, lower is the risk associated with it. These bonds are for a 10-year tenure, and come with a lock-in of five years, meaning one cannot sell these bonds for the first five years after investing. You can avail of the annual interest-payment option or the cumulative option. IDFC is paying 8.43% per annum on these bonds. Under the cumulative option, at the current rate of interest, your initial investment will more than double at the end of the 10-year tenure. But you will not get any money during these ten years. 

    Another important point to note here is that although you can claim tax deductions on your initial investments of up to Rs 20,000 in these bonds, the interest that you earn every year from these bonds is not tax free. Every year when you file your returns, the interest income from infrastructure bonds should be included in your income. 

YOU STILL HAVE TIME 

Equity Linked Savings Scheme (ELSS) of a Mutual Fund 

Consult your financial advisor and if these plans are suitable for you, ask how much to invest. Once you know that, your advisor can help you invest in the right plan, or you can also call the fund house to help you out Pension funds You can choose from select fund houses offering pension plans Insurance policy Again, check with your financial advisor and select the right one suited to your long term goals PPF You can open an account & deposit up to Rs 1 lakh Infrastructure Bond 

From IDFC (up to Rs 20,000): Your broker can help you; this is over and above the Section 80C limit under which you can invest up to Rs 1 lakh to lessen your tax burden