How to do your tax planning with market-linked products

It is that time of the year when people start talking about tax. The same when brokers/agents of financial products are seen readying for the peak season. Here's a few market-linked options that can help you with tax planning.

Equity-linked saving schemes (ELSS)

• Also known as a tax saving mutual fund, ELSS enjoys the distinction of having the shortest lock-in period among the options available under Section 80C.
• It is a diversified equity scheme with a lock-in period of three years.
• One can invest through SIP with as little as Rs 500. There is no maximum limit of investment in ELSS.
• In case of redemption after lock-in period, capital gains are tax free.
• Given that it is an equity-linked fund, its returns are not guaranteed.
• There is a plethora of ELS schemes available in the market. Therefore, investor prudence is of utmost importance while selecting a fund.

• It is a market-linked insurance scheme with a lock-in period of five years.
• It provides the twin benefits of insurance and investment.
• It offers tax benefits on the premiums paid by the policyholder.
• An investor can choose between debt and equity allocation.
• No tax is levied on switching funds from equity to debt or vice-versa.
• If the policy is surrendered within five years, the deductions claimed thus far will be added to your income and taxed accordingly.
• In case of redemption after lock-in period, capital gains are tax-free.

• Salaried individuals can claim deduction of up to Rs 1.5 lakh from their own contribution under Section 80C.
• Post-Budget 2015, an extra Rs 50,000 can be saved under Section 80CCD (1B)
• The same is applicable to those who are self-employed as well
• Investors have the option to choose whether to invest the amount saved in equity, corporate bonds or government securities.
• However, there is a 50 per cent investment cap on equities.
• Even if the redemption is after lock-in period, capital gains are taxed as per one's tax slab.

• Pension plans offered by mutual fund companies invest 40 per cent of the sum into equities and the remaining in debt.
• Amount invested in pension fund qualifies for deduction under Section 80C, subject to a maximum limit of Rs 1.5 lakh per annum.
• One can opt for regular pension or systematically withdraw units, after vesting age.
• Since these schemes invest 60 per cent into debt, it is treated as a debt-oriented scheme. In case of redemption, you are liable to pay long-term capital gains tax.