Sanjay Karandikar is a hassled man. For the last month or so he hasn't had a leisurely meal nor has he spent time with his family. He is an insurance advisor and has been running around getting forms filled, collecting cheques, collecting receipts and issuing certificates.
He is not alone. Most insurance advisors and other investment brokers are working overtime as their clients are calling them frantically asking what are the investment options to minimise their income tax liability.
At the centre of most of the action is section 80 C of the Income Tax Act which allows tax concession on certain investments including insurance premium, contribution to Public Provident Fund and National Savings Certificates. An amount of up to Rs 1 lakh invested by an individual in these schemes qualify for deduction and no tax is payable on this sum.
"It's the same this time of the year," says Karandikar. "Salary earners always wait for the month of March to commence and then spring into action. I have experienced that nearly 40 per cent of my business happens in March, every year. Its very common to see salaried people rushing about making investments with the intention of reducing, to the extent possible, their income tax liability."
Life Insurance Corporation (LIC) of India's policies lead the pack of investment options and the month of March, every year, witnesses a jump in the number of policies bought. Partha Samal, senior divisional manager for, LIC, Pune told TOI that out of Rs 427.36 crore first premium received by the Corporation so far this year, Rs 46.99 crore is received in the current month alone.
He, however, qualifies his statement by saying that the premium collection is often a reflection of availability of plans. "Last year, there was an attractive plan available in January, so the first premium collected in that month was higher than March," he said.
The rush this year is particularly significant as the implementation of the new Direct Tax Code (DTC) is going to change the picture drastically. Unit Linked insurance plans, such as the ones that assure returns at highest net asset value (NAV), have caught the fancy of investors.
These investments now enjoy Exempt-Exempt-Exempt (EEE) treatment under sec 80 C, implying that the amount of investment, interest or benefit earned on it and the final amount received on maturity of the investment are all tax exempt. This will change to Exempt, Taxed, Taxed (ETT) under Section 66 of the new DTC. This means the investment will enjoy tax concession when made, but the earning on it and the final amount of maturity will be added to your income when received and taxed.
Sunil Kakkar, chief financial officer, Max New York Life, said, "The proposed direct tax regime is good for the consumer. It will encourage savings behaviour through higher disposable income in the hands of consumer by significantly reducing income tax rates. Its proposal to increase tax-exempt savings limit to Rs 3 lakh will also promote savings behaviour."
Karandikar says the Rs 1 lakh limit can be judiciously used to optimise return and protection. The equity linked savings schemes which offer smart returns redemption after three years of lock-in and also their dividends are tax exempt.
"A proper combination of investments in Public Provident Fund, ELSS, Tax Savings Schemes of Mutual Funds and insurance plans will help an individual optimise returns and protection even under the new DTC when it becomes applicable," he points out.