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That tax effect

india Updated: Jan 10, 2009 20:15 IST

Hindustan Times
Highlight Story

In a country with a population of over a billion, only 31.5 million people pay taxes — this despite the fact that the number of taxpayers has grown by nearly 11 per cent between 2002-‘06.

A significant proportion of those who try to escape the net legally are believed to be under the age of 35. This segment, experts state, attempts to get into various financial planning schemes during the tax season. Florie D’Sa, 23, accounts executive, has already started planning for next year. “Once I was confirmed, I got a raise which put me into the tax bracket. It’s important that I invest to avoid a significant loss of income,” she asserts.

Initial investment
Florie has invested in MET Life’s MET Smart Plus. Under the scheme, her money was put into mutual funds which gets her an insurance cover of Rs 3 lakh. After three years, she can withdraw the capital but will have to pay Rs 12,000 yearly as premium to keep the insurance policy active. Sanjay Bhatt, territory manager at a leading investment firm, says Florie has made the right investment. “Anyone who earns between Rs 10,000-Rs 15,000 a month should opt for systematic investment plans or insurance linked equity policies,” he advises. One of the reasons for opting for either of the two investment plans is to avoid making the mistake the earlier generation did by trying to make a quick buck from the stock market during the bullish growth phase.

Safe bets
Experts believe that in the current market when there’s a financial meltdown, slow-paced mutual funds are a safer bet because 10-15 years down the line, one is ensured of a sizable return. Yet the share market is still uppermost on the minds of the young. Some are convinced that this is the right time to start investing with the Sensex at just about Rs 10,500. Shweta Kothari, 22, a bank employee, says that while she would like to enter the stock market at this stage and make a quick buck, she is afraid that a correction soon could lead to heavy losses.

Bhatt agrees with Shweta and advises the young to stay away from the market and not even invest in blue-chip companies. “Even if the Sensex goes up, earnings will be low since we are in a bear market,” he cautions.

A more viable option could be to go in for an insurance policy as it not only provides you with a cover against accidents and death but also gives tax benefits — since a deduction for the premium is available during tax.