Question: I am interested in knowing what tax saving instrument would be beneficial for long term savings in the wake of new DTC to be implemented from 2012, i currently have 1-2 small denomination mediclaim and ULIP policy apart from my home loan deduction as i have applied for closure on money back LIC policy since it would not be eligible for tax deduction and would go for term insurance plan.
I am also interested to know if short term money can be earned through direct equity trading like an additional small monthly income? if yes how much tax does it attract?
What would be a good short term liquid SIP investment tool (investment horizon 5 years) which offers balanced benefit both in terms of risk and returns?
Answer: Dear Mr Bhautik, with the implementation of DTC (Direct Tax Code) from 01-04-2012, ELSS (equity-linked saving schemes), NSC, 5-year tax saving bank FDs (fixed deposits) will be stripped off section 80C deduction. Instead, the government is encouraging saving for long-term goals by giving EEE status (fully tax exempt) to PPF (public provident fund) and NPS (New Pension System) and long-term Infrastructure bonds.
For life insurance policies, deduction is available (under the DTC) for policies with annual premium below 5 % of the sum insured ( i.e. sum insured being 20 times annual premium) with a long tenure (such as 20 years). The overall sub-limit for deduction with regards to tuition fees, life and health insurance together is proposed at Rs 50,000 p.a.
Regarding your query on short-term direct trading in the stock market - any income arising from the same will currently attract short term capital gains tax of 15% (excluding cess @ 3%).
Regarding your query on a balanced investment alternative for a 5 year time horizon - you can consider balanced mutual funds - these are basically a hybrid of equity funds that invest in both equity and debt instruments as per the investment objective of the scheme. Balanced funds are a good investment alternative for conservative investors willing to participate in equity markets without wanting to take too much risk.
Click here to know about the best mutual funds for SIP (systematic investment plan) investment.
Expert @ InvestmentYogi