What lies ahead for your savings and investments

28 Feb 2006

1

The budget plays an important role in the way you plan your finances. It decides your investment outlays, your asset allocations and your fund allocations. We tell you how your savings have been hit.

While the budget didn't pull any surprises in the form of new taxes, some promises remain unfulfilled. The much awaited regime of E-E-T or Exempt Tax was promised in last year's budget with no further action in the last fiscal. This time though, most experts believed or rather expected some announcement in that direction. However the Finance Minister kept silent.

Nevertheless, some changes were announced with regard to your other savings such as bank fixed deposits and mutual funds. Pension funds also got the much needed impetus. Here is a handy guide on all your investments tools and how they will be treated this fiscal.

Investment
Budget Impact
National Saving Certificate
PRE BUDGET Lock in: 6 years
Tax impact at time of investment: Deduction u/s 80C up to Rs 1 lakh
Tax impact on interest/ dividend: Taxed at your respective tax slab
Tax impact on withdrawal: Tax free if withdrawn on maturity i.e. after 6 years
 
POST BUDGET
Same
Public Provident Fund
PRE BUDGET Lock in: 15 years
Tax impact at time of investment: Deduction u/s 80C up to Rs 70,000
Tax impact on interest/ dividend: Taxed at your respective tax slab
 Tax impact on withdrawal: Tax free if withdrawn after 6 years
 
 POST BUDGET
Same
Employees Provident Fund
PRE BUDGET Lock in: Till retirement
Tax impact at time of investment: Deduction u/s 80C up to Rs 70,000
 Tax impact on interest/ dividend: Taxed at your respective tax slab
Tax impact on withdrawal: Tax free if withdrawn on retirement
 
POST BUDGET
Same
Bank Fixed Deposits
PRE BUDGET Lock in: 5 years
Tax impact at time of investment: NIL
Tax impact on interest/ dividend: Taxed at your respective tax slab
Tax impact on withdrawal: No tax on withdrawal of principal on maturity
 
POST BUDGET
 Deduction u/s 80C up to Rs 100,000 at the time of investment
Post Office Monthly Income Scheme
PRE BUDGET Lock in: 6 years
Tax impact at time of investment: NIL
Tax impact on interest/ dividend: Taxed at your respective tax slab
Tax impact on withdrawal: No tax on principal on maturity
 
 POST BUDGET
Same
Equity stocks
PRE BUDGET Lock in: NIL
 Tax impact at time of investment: NIL
Tax impact on interest/ dividend: Dividend tax free in hands of investors
Tax impact on withdrawal: Short term capital gains tax @ 10% and Long term capital gains tax is nil
 
POST BUDGET
Same
Equity Mutual Fund (other than ELSS)
PRE BUDGET Lock in: NIL
Tax impact at time of investment: NIL Tax impact on interest/ dividend: Dividend tax free in hands of investors Tax impact on withdrawal: Short term capital gains tax @ 10% and Long term capital gains tax is nil
 
POST BUDGET
Same
Close ended mutual funds
PRE BUDGET Lock in: NIL
Tax impact at time of investment: NIL
Tax impact on interest/ dividend: Dividend taxed in hands of investor
Tax impact on withdrawal: For equity refer equity mutual funds and for debt refer, debt mutual funds
 
POST BUDGET
Dividend tax free in hands of investor
ELSS
PRE BUDGET Lock in: 3 years
Tax impact at time of investment: Deduction u/s 80C up to Rs 1 lakh.
Tax impact on interest/ dividend: Dividend tax free in hands of investors
Tax impact on withdrawal: Short term capital gains tax @ 10% and long term capital gains tax is nil
 
POST BUDGET
Same
Debt fund/ balanced fund/ Monthly income plan
PRE BUDGET Lock in: NIL
Tax impact at time of investment: NIL
 Tax impact on interest/ dividend: Dividend tax free in hands of investors
Tax impact on withdrawal: Short term capital gains tax at your respective tax slab and long term capital gains tax is 20%
 
 POST BUDGET
Same
Pension policy
PRE BUDGET Lock in: Minimum 5 years
 Tax impact at time of investment: Deduction u/s 80CCC up to Rs 10,000
Tax impact on interest/ dividend: Annuities are taxed at your respective tax slab
 Tax impact on withdrawal: 1/3rd withdrawal is tax free
 
POST BUDGET
Deduction u/s 80CCC up to Rs 100,000
Traditional Life Insurance Policy

PRE BUDGET Lock in: Minimum 2 years
Tax impact at time of investment: Deduction u/s 80C up to Rs 1 lakh
 Tax impact on interest/ dividend: Bonus tax free
Tax impact on withdrawal: Tax free if withdrawn after 2 years


POST BUDGET
Same

ULIP
PRE BUDGET Lock in: Minimum 2 years
Tax impact at time of investment: Deduction u/s 80C up to Rs 1 lakh
Tax impact on interest/ dividend: NA
Tax impact on withdrawal: Tax free if withdrawn after 2 years

POST BUDGET
Same
Mediclaim
PRE BUDGET Lock in: Not applicable
Tax impact at time of investment: Deduction u/s 80D up to Rs 10,000
Tax impact on interest/ dividend: Not applicable
Tax impact on withdrawal: Claim is tax free

POST BUDGET
Same
RBI saving bonds
PRE BUDGET Lock in: 5 years
Tax impact at time of investment: NIL
Tax impact on interest/ dividend: Taxable
Tax impact on withdrawal: Taxable

POST BUDGET
Same
Senior citizens scheme

PRE BUDGET Lock in: 5 years
Tax impact at time of investment: NIL
Tax impact on interest/ dividend: Taxable
Tax impact on withdrawal: Taxable
POST BUDGET
Same

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