From time to time, various tax-saving schemes are made available for the individual income tax assessees. These schemes have different features such as tax-benefit return, liquidity, safety, risk coverage, old age benefit, etc., which may influence and attract the assessees to invest. Whenever a new investment is made, not only the tax benefit on contribution but also the tax concession on the income arising out of such investment becomes an important consideration. A good investment is one, which ensures safety, profitability and liquidity. Investment planning is nothing but achieving a balance among these three principles i.e., safety, profitability and liquidity. Most of the investment in tax-saving schemes directly goes to the exchequer. Majority of the salaried assessees do not know that they could save considerable amount of income-tax by adopting suitable tax planning measures provided in the Income Tax Act. In this connection, they usually approach the tax consultants. The guidance and information provided by the tax consultants about the tax-saving schemes may not be suitable, adequate or in time. Ironically, the agencies dealing with tax-saving schemes also have not taken adequate steps to popularize their schemes among the assessees. The government is also interested to know which tax-saving scheme is mostly preferred by the salaried assessees for further investment, if the maximum qualifying limit for tax-saving schemes stands raised. Hence to provide a valid solution, both to the assessees and to the government, a study is undertaken among the salaried assessees in Erode District of Tamil Nadu. The analysis and result thereof is presented below.
Tax-saving schemes are schemes, available for the individual assessees to save their income and reduce tax liability. Investment in tax-saving schemes is one of the tax planning measures adopted by the salaried assessees. Tax planning not only reduces the tax liability but also helps in achieving the objectives of the legislature which is lawful, social and ethical. Further, tax planning is necessary for minimizing litigation between tax authorities and assessees, healthy growth of economy and employment generation in the country. How to reduce/save income tax legally, is the problem of millions of tax payers. They could save income tax considerably by investing in tax-saving schemes, recognized by the Income Tax Act. An individual may invest in any one of the various tax-saving schemes that are available. It is usually agreed that there is no substitute to Life Insurance as it covers the risk of life and tax benefit under the Income Tax Act for the premium paid. The policy maturity amount is also fully exempted from tax. However, selecting a right plan is crucial, since commitment to premium is usually long-term. Shortfall in funds may force one to surrender one's policy. A bank manager may canvass the assessees that the deposits would become double over a period of few years. However, interest is subject to tax. A deposit in Public Provident Fund ensures total safety of the amount and offers easy liquidity in the form of loan and withdrawals. It is a wonderful money multiplier with tax-free returns, which is very popular among every class of investors. 15 year tenure with yearly contributions of very high flexibility, makes this scheme very different from the other fixed investment options. An investment in 6 year National Savings Certificates is a very good instrument for medium-term investment. In this scheme, not only the initial deposit but also the interest accrued enjoys the benefit of deduction U/S 80C. Investments in units of Unit Trust of India, units of Life Insurance Corporation of India and units of Mutual Fund, which invest the amount of subscription in eligible issue of capital, are also eligible for deduction U/S 80C from the Gross Total Income of the assessees. Income from these investments is also fully exempted from income-tax. The attitude towards these tax-saving schemes differs from one assessee to another. One may be interested in safety of the saving scheme, another in the return of the saving scheme, and yet another may be interested in the liquidity of the saving scheme. Among these three categories of assessees, it is not easy to say who is rational and prudent. Each assessee is influenced by many factors in choosing a particular tax-saving scheme. Hence, a study is undertaken to identify the factors which influence investment and the factor which has highly motivated the assessees to invest in the various tax-saving schemes.
How to choose an ideal tax-saving scheme is the problem of income tax assessees. In order to reduce tax liability, an assessee has to plan well as to where and how much to invest. In choosing a specific investment, one needs to have definite ideas regarding a number of features of investment such as safety of principal, liquidity, stability of income, capital growth and tax benefit. Assessees have to be made to understand the pros and cons of various investment opportunities, tax implications of those investments and the latest information of desired investment portfolio. Assessees have to plan their investments in such a way so as to derive maximum return with minimum tax liability.
Some assessees may like to invest in tax-saving schemes, whereas others may like to invest in other investments rather than in tax-saving schemes, as net return on other investments is higher than the savings of tax in tax-saving schemes. Therefore, some assessees may adopt tax-planning measures to reduce their tax liability and others may prefer to pay tax if other non-tax-saving investment schemes earn higher returns than the investment in tax-saving schemes. Some assessees may not be in a position to invest in either of these types of investments because nothing may be left out after meeting their family needs. These assessees may prefer to pay tax rather than to invest in tax-saving schemes. Therefore, a lot of variations are bound to come up in their approach towards meeting the tax burden.