And worst of all, patient

It's that time of the year again when tax starts to weigh on one's mind (atleast, it should be). A lot of changes in the I-T act this year say most websites that i bother to read.

In case you dont already know, one can exempt upto 1L off the salary and get the tax benefit of your bracket. So, instead of a not-so-attractive %15 rebate like last year, your investment of 1 Lakh is not taxed. In theory, you can get upto 30% off of taxes when investing in instruments specified in Section 80C of the I-T Act.

So i set out on a quest to ascertain the tax saving that I could perform and the instruments available. Its times like these when I wish i had a huge house loan so i didnt have to go search for other tax saving products. Anyway, here's what I found:

1. NSC (National Savings Certificates):
- Gives 8% compounded half-yearly
- Lock-in 6 years
- Interest is taxable

Dont like this option as interest forms part of taxable income next year! In essence, I don't receive the interest AND pay tax on it. That's some sort of double whammy. Effective interest after tax is 5.something (not the sequel to five point someone).

2. ELSS:
- Lock-in 3 years
- Equity-linked

Most say that this is the best option as equity gives highest returns of all asset classes over the long-term so you cannot go wrong with ELSS. What they neglect to mention is you got to do ELSS right. First, dont overpay by ALWAYS using a SIP plan. Second, I think the stock market is scary at the moment so investing lump-sum right now is not for me. Its too late to start a SIP plan this late and make the 1Lakh cut within March 2006. So, this plan too is out for THIS year. Next year, I'm atleast 50% ELSS+SIP.

3. Insurance:

short Answer: no way
long answer: NOOOOOOOOOOOOO WAAAAAAAAAAAAAAAAAAYYYYYYY


4. Housing Loan:

step 1: buy a house...

5. PPF:
- 15 year lock-in
- interest is non-taxable
- got to make contributions every year for 16 years (atleast Rs.500 a year).
- 8% interest compounded annually

This is sort of like NSC except the effective interest rate is lower (as NSC is compounded
half-yearly) but, on the flip-side, the interest income is non-taxable. Lock-in is longer though. You dont really need to stagger this investment like ELSS. The interest is the same whenever you enter. Next, the interest is non-taxable so I dont get taxed for income i dont get. I figured that if i have some money that i wont need for 15 years, then I ought to just park the funds in a PPF.

So based on that unscientific analysis, i decided to open a PPF account. First, the venerable SBI closed on me (it was saturday after lunch). The post-office also shot me down (it's right across the street from the main bangalore SBI) although they didnt really give me a reason why. My PPF action item was not going down easy.

Now, at some point, I had read that ICICI was recently authorized to collect funds for opening a PPF account. A press release from ICICI stating that they are going to offer online access to PPF account from your savings account at ICICI. The ICICI website, perversely, makes no mention of this fact anywhere. You can search for PPF all day long at icicibank.com and you wont find a thing. The other scheme mentioned in the press release, some senior saving scheme, gets a page of its own so you're left wondering if the addition of the PPF in the release was a huge mistake by the Marketing Dept.

I figured i ought to give ICICI a shot. I had already heard 'no' twice and was getting used to rejection. i stepped into the main ICICI branch and, wonder of wonders, they do open a PPF for you if you ASK. Ten minutes and one submitted photograph later, I was given a PPF account number WITH online access from my savings account. The account would be activated 10 working days after the submission of the form. There, wasnt that simple?

Questions that I want to scream at the top of my lungs are (but didnt) are:

(A) Why does SBI require two photographs, compulsory witnesses for nomination AND an initial cash deposit? By contrast, ICICI wants one photograph and cash/cheque and no signatures when nominee is a major!

2. Why is ICICI not publicizing its PPF capabilities? Is one web page extra too much cost? I'm guessing, since opening a PPF at ICICI does not benefit ICICI in any substantial way, they'd rather not spend time or money on informing the public.



In conclusion, my big tax saving plan for this year: PPF.