You can avoid last-minute rush if you start planning your taxes right now.

The rise in the investment in tax-saving schemes in February/March every year shows how little thought we give to tax saving all through the year. But there are ways which help you save right from the beginning of the financial year.

Contributions out of income chargeable to Income Tax by an individual or HUF to some specific schemes qualify for deductions from tax payable at a flat rate of 20% of the contributions made. The aggregate contribution to all these schemes qualifying for deduction is subject to a ceiling of Rs. 70,000. However, there are sub-ceiling on individual avenues.

There is no ceiling on infrastructure-related instruments. All the other avenues put together have a sub-ceiling of Rs. 60,000. Then again, there are sub-ceiling within sub-ceilings.

1. Equity-Linked Savings Scheme (ELSS) of UTI/MFs is eligible up to a contribution of Rs. 10,000. Therefore, your tax consultant is quite right. At the present juncture, such schemes are performing rather well and therefore, you would do well by investing Rs. 10,000 in any of these.

2. Another avenue qualifying for such a rebate is the payment made by an individual or HUF towards cost of purchase or construction of a residential house (not necessarily self-occupied). It also includes repayment of loans to some specified sources, stamp duty, registration fee and other expenses incurred on transfer of such property. There is a ceiling of Rs. 10,000 (raised to Rs. 20,000 by Finance Act, this year) on such deductions, subject to the overall monetary limit of Rs. 60,000.

3. Amongst the rest of the avenues are LIC and statutory Co-PF which are also amongst the overall monetary limit of Rs. 60,000.

4. After taking congnisance of all ELSS, repayment of housing loan, LIC and Co-PF, some additional contributions can save you further tax, the best among these is : Infrastructure related Tax-saving Bonds of ICICI/IDBI. Their true worth lies in the fact that the lock-in period is as small as three years.

Let me be more explicit. Suppose, after taking into consideration the more compulsory requirements (LIC, Co-PF) and not compulsory but strategic requirements (Rs. 10,000 to ELSS), you are required to contribute Rs. 25,000 to other avenues. An outlay of Rs. 75,000 (25,000x3) will gain the benefit of Sec. 88 for life. It is necessary to strive hard to contribute Rs. 25,000 per year during the initial three years. During the fourth year, redemption amount of the first year will sail you through. During the fifth year, the redemption amount of second year, and so on. You have to take a small precaution through. The contribution to Sec. 88 has to be made out of the income chargeable to tax. Therefore, use the redemption to cater for your daily expenses and contribute to the Bonds out of the income earned during the year. Simple, isn’t it?

5. There is no need to look at any avenue other than the Bonds; yes, not even PPF. As a matter of fact, PPF which was my favourite once upon a time, has become listless after the advent of the Bonds and now more so, after its interest rate has been slashed down from 12% to 11%. If you have not already done so, kiss good bye to PPF and shift to the Bonds.
The pure-growth, open-ended, Debt-based (PODs) schemes of UTI/MFs have been yielding higher returns (after-tax or otherwise) than 11%. Therefore, you should withdraw as much as possible, as soon as possible from PPF and take the funds to PODs. At this time, the equity market has possibly reached its bottom and is looking at an upsurge. Those who have little appetite for market-related risks, should withdraw from PPF and go in for POEs (Equity-based) schemes.

6. There is one exception, ULIP of UTI. This offers life cover up to an amount of Rs. 75,000, and the ceiling on the annual contribution is governed by this rule. It is quite good for young individuals opting for a life cover as this is the cheapest one.

7. Finally, let me again come to the Bonds. I find that there is a lot of confusion about the ceiling of its investment. Many of the assessees erroneously feel that it is limited to only Rs. 10,000.
If you invest, say Rs. 50,000, in other eligible avenues and Rs. 20,000 in this new avenue, you can knock off from your tax liability Rs. 14,000 in place of Rs. 12,000. On the other hand, if Rs. 68,000 is invested in other avenues and only Rs. 5,000 is subscribed to infrastructure, the rebate of Rs. 13,000 can be claimed only on Rs. 65,000.
The market is placed nicely at the bottom and is likely to surge upwards with a bang. Therefore, the right action plan at this time is to
• Contribute Rs. 10,000 to an open-ended ELSS of your choice right now. Examine the given table (Returns from various ELSS) for your choice.
• Withdraw from your PPF as much as possible, as soon as possible.
• Unless the maturity of your PPF is less than three years away, shift over to the Bonds for your annual contributions. You can wait until the fag end of the year to take this action. The salaried class may have to contribute a little early to enable their employers adjust the TDS in good time.
• Contribute only Rs. 100 to PPF for the year to keep it alive.