After the budget, a lot of investors feel they have been short-changed by the finance minister as far as tax-sops are concerned.

The Union Budget 2002-03 has recommended significant revision of some tax sections. To know more about these changes and how they affect you, click here. In this report, we have outlined the more popular instruments and the tax benefit available on the same.

Bank deposits: Investments in bank deposits are eligible for tax benefits under Section 80L. In this Section, interest income earned upto Rs 9,000 per annum is exempt from tax. Also, bank deposits are insured upto Rs 100,000 per deposit in case of a default. Lets take an example of an investor who keeps a 1-year deposit of Rs 100,000 in a bank giving 9% p.a. He will earn a tax-free return of Rs 9,000 by availing of section 80L benefit coupled with high safety as his deposit is insured for the full amount.

Company deposits:  As far as company deposits are concerned, only housing finance companies offer tax benefit under Section 80L. So if an investor invests in 3-year deposit with Kotak Mahindra for instance, which is an NBFC (non banking finance corporation), the interest income received after 3 years is fully taxable depending upon the tax bracket of the investor.

Single premium bond:  The Single Premium Bond offered by various insurers makes a good investment product combining safety with returns. It is also tax-efficient as investment proceeds are tax-free under Section 10(10D).

Mutual funds:  Debt fund investors under the dividend option can avail of 80L benefit. Now the Rs 9,000 tax benefit under Section 80L is shared by bank deposits, housing finance company deposits and dividends from mutual funds. Investors who plan to be with a fund for over 12 months, may want to look at the Systematic Withdrawal Plan (SWP).

Government Securities (Gilts):  A retail investor can now easily purchase a government security from a primary dealer in the market. Gilts are one of the safest investment options (in terms of credit risk) as they are backed by the government. Gilts too offer tax benefits under section 80L. Interest income earned on gilts upto a limit of Rs 3,000, is exempt from tax under Section 80L. This in addition to Rs 9,000 exemption for bank deposits.

If you are in Mumbai and are interested in investing in fixed income instruments, mutual funds or other investments, please register here.

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