Q: Please suggest some good Mutual Funds to invest money  from Tax Saving perspective for financial year 2009-2010.Also it would be helpful if you can suggest alternative investment strategies from Tax saving perspective.

A: From Tax saving perspective for FY 09-10, the mutual funds you can look at are ELSS schemes. In this category, Fidelity Tax Advantage and Sundaram BNP Paribas Taxsaver have been consistently good performers. Read the article on Best Tax Saving Mutual Funds for more on this.

Below are some important Deductions (under Chapter VIA) for tax saving available to individual assessees for FY 09-10:

Section and Benefits

1. Sec 80C: Maximum benefit of Rs 1 lakh p.a. available through the below options-

• Life insurance premium paid for policy taken in the name of self, spouse, children (irrespective of marital status and dependency on assessee). However, premium deduction is subject to 20% of sum insured.
• Contribution to Public Provident Fund (Maximum deduction allowed is Rs 70000 per year)
• Contribution to other Provident funds (other than unrecognized provident fund )
• Contribution to National Savings Certificate (NSC VIII issue) – both principal and interest are allowed as deduction.
• Senior citizens savings scheme
• Post Office-Time Deposits
• Subscription to any mutual fund scheme specified under section 10 (23d), i.e., ELSS and ULIP
• Sum paid towards children’s tuition fees subject to certain conditions.
• Subscription to 5 year Tax saving term deposit
• Subscription to NABARD Rural Bonds.
• Infra Bonds – Bonds issued by infrastructure companies.
• Home loan principal repayment –where loan is taken for acquiring new house, not for repair/renewal/reconstruction. Also, registration and stamp duty charges are allowed as deduction in the year of purchase of home.

2. Sec 80CCC

• Investment in pension funds

3. Sec 80CCD

• Contribution to Government pension scheme by government employees

4. Sec 80D

Medical Insurance premium paid by assessee for policy taken in the name of self, spouse (dependent or not), dependent children and dependent parents. Amount of deduction is as follows-

• In case of regular persons- Rs 15000 p.a.
• In case any of the persons mentioned above is a senior citizen (> 65 years of age) – Rs 20000 p.a.

Additional deduction is allowed if mediclaim premium is paid for parent’s policy. Maximum deduction is Rs 15000 p.a and Rs 20000 p.a. in case the policy holder is a senior citizen.

*payment to be made in any mode other than cash (i.e., cheque, DD, standing instruction etc) to claim deduction.

5. Sec 80DD

Deduction wrt to treatment of a disabled dependent. Maximum exemption is as below:

• Normal disability – up to Rs 50000 p.a.
• Severe disability – up to Rs 100000 p.a.

6. Sec 80DDB

Deduction wrt medical treatment of specified diseases and ailments ( mentioned under rule 3A) of self, dependent – spouse, children, parents, brothers and sisters.

Maximum exemption is as below:

• Regular person-Maximum of Rs 40000 p.a.
• In case of senior citizen – Maximum of Rs 60000 p.a.

7. Sec 80E

Interest paid on loan taken for higher education (all the studies after Class 12 - either vocational or Fulltime but should be from a school/institute/university recognized by the government.) by the assessee.

• Deduction is interest paid towards the loan during the previous year (from income chargeable to tax). No limit on amount of deduction.
• Loan taken by assessee for self, spouse, children, or a student to whom assessee is legal guardian.
• Tax benefit under this section available from start of repayment to up to 8 assessment years.

8. Sec 80G

• Donations made – Subject to conditions

9. Sec 80GG

• Deduction wrt the rent paid by assessee if he (or his spouse or children) does not own any residential property and also, assessee is not in receipt of HRA and RFA.

10. Sec 80U

Deduction available to disabled persons. Exemption* is as below:

• Normal disability – Rs 50000 p.a.
• Severe disability – Rs 75000 p.a.

* Exemption is irrespective of actual expenditure.

Note: Maximum deduction available under the three sections viz., sec 80c sec 80ccc and sec 80ccd together is equal to Rs 1 lakh p.a.

Warm Regards,

From Your Expert @ TaxYogi