It's that time of the year again when tax payers worry about taxes, one of the two things Mark Twain described as 'certain' in life. (Or was it Benjamin Franklin? Either, being Americans, these certainty wonks were unaware of the wonders cricket could pull off.) The purpose of this piece is to save you not the worry-that you will anyway-but the part that eventually counts, the money. This is best done, at least legally, by reducing your tax liability.

That is best done via the 'two fat ladies' solution: the rebate available under Section 88 of the Income Tax Act, 1961. This lists several investment options which, if taken, reduce your tax liability by 15 per cent of the money invested subject to a ceiling of Rs 15,000. In other words, if you put Rs 1 lakh into these assets, you can knock a clean Rs 15,000 off your tax bill. Do note, however, that this benefit is not available to you if your gross annual income is above Rs 5 lakh.

Now, you're unlikely to invest a lakh without an idea of how good these investments are. Here's a look at some investment options.

The First Rs 15,000

The first option under Section 88 for most is life insurance, since this not only offers the benefit of protection but also a rebate. Your premium is treated as the investment for calculations. It is, of course, a long-term deal till maturity many years later, so this is not an investment in the regular sense. Still, you need to choose well. You should avoid concentrated-premium policies. This is because if the premium is above 20 per cent of the sum assured, the excess part will not be considered for the Section 88 rebate calculation.

Another must-have for many is the company provident fund (pf, in which the company typically puts a part of your salary, like it or not). Now, pf offers an unusually attractive return for the safety it assures. "It is offering 9 per cent tax free return, the highest available now," says Gautam Nayak, Chartered Accountant. You could choose to take your pf contribution to the maximum limit (20 per cent of your Basic pay plus Dearness Allowance). The downside is that this is a relatively illiquid option. "It will be very good for people who are going to retire in five years," says Nayak.

Another safe fund worth opting for is the Public Provident Fund (PPF), which also stands out for the high interest it pays (8 per cent, tax-free, which is generous these days). "As it is giving high interest rates, it is good even as a pure investment," says Kanu Doshi, Chartered Accountant, rebate or no rebate. "But investors should also keep in mind that this interest rate is not throughout the tenure," he cautions. The rate changes from year to year, and some say it is just lobby pressure that has kept it so high for so long.

That done, you could look at investments that are relatively liquid. National Savings Certificates (NSC) are a good option. They are currently offering an 8-per cent return, compounded half yearly. The return is taxable, but as the interest is compounded, you can claim the Section 88 benefit on the interest as well.

Another worthwhile option could be Equity Linked Savings Scheme or tax saving Mutual Funds (MFs). The lock-in period here is three years. Also, bear in mind that these carry high risk. But since you can invest only up to Rs 10,000 in these to avail of a tax rebate, you needn't worry about having too much exposure to stock volatility.

Yes, there are investment limits. In all, you cannot put more than a total of Rs 70,000 in all the above mentioned investments in pursuit of Section 88 benefits. So, if it's an entire lakh you must invest, where would the other Rs 30,000 go? Into infrastructure bonds issued by ICICI, IDBI and so on. These offer low interest rates (around 5.5 per cent these days), but are safe. Interest payments on these are tax-exempt under Section 80L (up to a limit of Rs 12,000), so the return on these is tax-free in your hand.

Capital Gains And Pains

The IT act, 1961, was amended by the finance act 2003, to make dividends tax-free in shareholder hands. Simple enough? Not quite. What about double taxation? What about dividends in dollars from overseas investments? What about the intricacies for the special case of Resident but Not Ordinarily Resident Indians (RNORs)? Taxation is never simple. Which is why Taxmann's Taxation of Income From Share Units And Other Securities by Samir Mogul, a Mumbai-based chartered accountant and MBA, is worth a read. Apart from clarifying vast thickets of taxese, it even delves into 'Dogs of the Dow' (routine 'high dividend yield' buys) and other investment strategies. The case study on Hindustan Lever's 2001 'issuance of bonus debentures by capitalisation of reserves under section 391 of The Companies Act, 1956' is particularly interesting.

Saving More

With Rs 15,000 saved, we advise you not to get complacent. Because there's plenty of tax being saved by those with incomes above the Rs 5-lakh qualification limit for Section 88. What are they using? Some of the less well-known sections of the Income Tax Act, including Section 80CCC and 80D, which are available to all income brackets (yes, you too). The deductions under these are made directly from the figure for taxable income, and this could spell some terrific benefits at higher levels.

Insurance companies' pension plans and medical insurance deals fall under this group. The upper limit is Rs 10,000 for each, and if you put money in both of these, your could knock another Rs 6,000 off your tax bill. So there-you have an extra Rs 21,000 to yourself already this year. This is not bad for Rs 1,20,000 invested-on which, remember, you are still to get the actual returns as they come (they're mostly safe).

And if even that's not enough, you could deduct expenses from your salary by paying interest on a housing loan (up to an annual limit of Rs 1,50,000, and only for a self-occupied house). And the principal component (up to Rs 20,000) is eligible for rebate under Section 88. Fiscally speaking, it makes sense now more than ever to liquidate traditional 'grab-and-flee' holdings such as jewellery and gold to put in the initial sum for a housing loan. If you're young, you could also deduct repayments on an educational loan (up to Rs 40,000, allowed up to eight years of the education's completion). Other minor tax offs include the recently introduced one on your child's school expenses (up to Rs 12,000 per child, and for only up to two children). This will also be treated as investment under Section 88. "But keep in mind that it is available only for the approved institutions," says Doshi, "Coaching classes are not eligible."

And Yet More

Those were the investment tricks on the assumption of a standard salaried income. But if your sources of income are diverse, then you may find other savings as well. Take capital gains---which you the retail investor should have made lots of, this past year.

Short-term capital gains are treated like normal income and taxed according to the tax-bracket. Long-term capital gains-on assets held over a year-are treated differently depending on the source. If from securities (that is, from stocks, mutual funds and so on), the tax rates are flat 10 per cent without indexation benefit or 20 per cent with indexation benefit. For other assets, the tax differs (See box Capital Gains and Pains).

The sale of a house, for example, attracts a daunting 20-per cent tax (with indexation benefit though)-a reason why the property market lacks liquidity and Indian geographical mobility remains so low. Further, you have to hold the asset for three years to get it qualified for long-term capital gain.

If you're holding on to your equity portfolio, you gain benefits under Section 80L, which spares you tax on dividends (and even interest on approved instruments) up to a limit of Rs 12,000.

If you have a house on rent, and that too a house you bought on a loan, consider yourself lucky. You can claim the entire interest on that loan (no upper limit) against the rent you receive. The loss, if any (under the 'income from house property' head) can be set off against any other income (salary, business and so on). "This should help to reduce the overall tax liability," says Nayak.

It pays, then, to be an asset builder. And that too, assets that are, by and large, deemed safe for all practical purposes of normal life-the sort of responsible behaviour that fiscal policy is supposed to encourage in all citizens.