The Union Budget 2005-06 has taken some landmark decisions and has completely changed the investment scenario in India. Now the common investor can decide the product he wants to invest in and also avail tax exemption. Even though Section 88 and Section 80L have been abolished, you can still get tax exemptions up to Rs 1 lakh, which will be directly deducted from the gross total income, irrespective of your taxable income, by investing in schemes under the new Section 80C, u/s 80CCC, & u/s80CCD.
The Budget proposals have covered almost all earlier exemptions available u/s 88 in the new Section 80C. Also, the scope of investments under 800CCC, which provides deduction of premiums paid under a pension plan, has now been enhanced.
Unlike earlier, where investment options with abysmal rates of returns with predetermined limits and tax exemptions, one can now have the flexibility of choosing among various schemes depending on risk appetite, with different investment amount subject to the overall exemption limit of Rs 1 lakh. Let us elaborate the new tax savings options available u/s 80C.
You can invest the entire Rs 1 lakh either in one scheme or divide it between different schemes depending on your risk appetite.
Contributions to PPF/EPF/ Superannuation Fund: There are no changes in the PPF rate in the current Budget, but the maturity proceeds may be subject to tax in future. This option is suitable for conservative investors.
ELSS schemes of all mutual funds: This is one of the best options available in the current scenario. The ceiling of Rs 10,000 investment has been increased to 10 times i.e. Rs 1 lakh. The lock-in period is three years.
The ELSS schemes have the potential of generating the highest return across all the tax savings schemes. The category average returns of mutual fund ELSS schemes for the last three-year period is more than 40%. Now you can judge the power of long-term investments in equity schemes. This option is ideal for aggressive investors.
Contribution to pension fund set up by any mutual fund notified under Section (23D) of Section 10: This option is less aggressive than ELSS schemes. The portfolio of pension funds is balanced in both debt and equity and generate above average returns. This option is suitable for moderate investors. Currently, there are two schemes available, namely, UTI Retirement Benefit Plan and Templeton India Pension Fund. We expect more fund houses will launch this product during the current year.
Unit-Linked Insurance Plan (Ulip) of UTIMF & Dhanraksha from LICMF: This product defers from the earlier products as it provides life insurance cover along with market-related returns. For example, in UTI-ULIP, the insurance cover is available up to Rs 5 lakh and in LIC Dhanraksha the cover is up to Rs 2 lakh. You can expect a moderate return from this category and it is suitable for moderate investors.
National Savings Certificate (NSC-VIII): There are no changes in the NSC-VIII rate in the current Budget. This option is suitable for conservative investors.
Premiums paid on life insurance policies: The premiums paid toward life insurance policies are eligible. Nowadays all insurance companies have introduced unit-linked insurance plans where along with life insurance cover one can expect market-related returns in the long run. Each and every individual should have adequate life insurance cover according to their needs to protect their dear ones from any uncertainties.
Premiums paid towards deferred annuity schemes: Currently, there is only one option available, viz., LIC Jeevan Dhara, where premiums have to paid yearly till deferment period. The annuity starts immediately after deferment and there is no life insurance cover offered in this scheme.
Deposit schemes of public sector housing finance companies: Currently no schemes are available but one can expect deposit programmes from National Housing Bank (NHB), Hudco. LIC Housing Finance etc.
Pension products u/s 80CCC: One of the most innovative features of the budget from the investors point of view is the opening of the cap ceiling limit u/s 80CCC for getting tax rebate. From Rs 10,000 earlier, one can invest up to Rs 1 lakh and avail tax benefit u/s 80CCC. All insurance companies have introduced pension plans with/without insurance cover. One has a choice between the conventional products as well as market-linked plans in this category. This product should be there in every investors portfolio.
New avenues highlighted in the Budget:
Gold mutual fund: Now mutual funds will launch gold traded exchange funds where the underlying assets would be gold. The minimum investment is proposed to be as low as Rs 100 to facilitate household investments. This scheme will attract a lot of middle class investors who have not yet invested in equity mutual funds.
Thus, considering the new tax sops and investment options now available, we can very well say this is an investor-oriented investment Budget.
The writer is managing director, Blue Chip Corporate Investment Centre Ltd
