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Business Taxation - Preliminary Expenses

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Are you going to set up a new business or willing to extend your existing business?

Then you can claim deduction for the preliminary expenses incured for,



What ever you are saving now will pay off with lower taxes now and more assets for (retirement) later.

What is the best tax saving scheme in India?

Here is the list of some commonly used income-tax saving schemes in India.

1. Term deposit
   

2. PPF

3. NSC

4. Kisan vikas patra

5. LIC

6. Post Office Monthly Income Scheme [No tax benefit available. However beneficial as regular income earning investment.]

Which saving scheme is best for you?

From tax saving point of view it depends on the following factors.

• Nature of scheme

• Period

• Rate of return

• Rate of return (considering tax benefit)

• Whether amount can be deducted from income under section 80C?

• Whether wealth tax exemption available?

• Whether Interest Exempt from Income-tax?

Here is the quick analysis of the income-tax saving schemes.

Particulars	I	II	III	IV	V
Nature of Investment	Bank/Post Office - 5 Years Term Deposit (including Senior Citizen Deposits)	6 Year Post Office Monthly Income Scheme	National Savings Certificate/Kisan Vikas Patra (NSC/KVP)	Life Insurance	Public Provident Fund (PPF)
Brief Description	Short term, easy to operate tax saving scheme	Short term, easy to operate regular income earning scheme	Short Term to Medium Term fixed period schemes	Medium to Long term investment cum life assurance scheme	Long term investment scheme
Investment Limit	Bank FD - Rs.1,00,000 Senior Citizen Scheme - Rs.15,00,000 Others - No Limit	Maximum: Rs.4,50,000 in Single Account and Rs.9,00,000 in Joint Account	No Limit	No Limit	Maximum: Rs.70,000 in a financial year (minimum - 15 years)
Whether Investment eligible for deduction from Income?	Yes.	No.	Yes. However, KVP is not eligible for deduction	Yes.	Yes.
Approximate Return	7.5% p.a. to 9% p.a. *	8% p.a.	7% p.a. to 9% p.a.	Depends on the nature of policy	8% p.a.
Whether Interest/Income Exempt from Income Tax?	No.	No.	No. However, interest on NSC is eligible for deduction for the first 5 years as if it is fresh investment.	Any withdrawal from LIC is totally exempt**	Yes.
Whether Loan can be availed against the Investment?	No. Availing loan would lead to reversal of tax benefits.	No.	Yes.	Yes.	Yes.
Any partial withdrawal possible?	Interest may be withdrawn depending on the scheme. Pre-closures are permitted in certain cases under certain restrictive situations.	No.	No.	In select policies after the specific period	After fourth year of initial subscription
To whom beneficial?	Any person who have funds earmarked for 5 years.	Any person who expects regular monthly income	Persons with surplus fund with unknown maturity period	Persons who wish to cover the life and help the beneficiaries financially	Persons who have long term financial plan with flexibility

* May vary from Bank to Bank

** Amount received back from any of the following policy is chargeable: -

• Keyman Insurance policy

• Where premium paid under the policy in a year is more than 20% of the sum assured

• Where benefit under section 80DD or 80DDA was availed.

Conclusion:

You shall make the final decision based on your financial position and requirements. This analysis of various tax saving schemes is general guideline as of July-2008.

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