The 31st March deadline for completing your tax saving investments is hardly few days away and many taxpayers are running around to make investments for minimising their tax liability. Salaried taxpayers often end up paying more taxes than they are supposed to; reasons could be a lack of time for doing their tax planning or lack of knowledge about various tax rules or financial products to invest in. Let’s follow some important tips before you make your last minute investments:-
Since we are talking about last minute tax planning, it means that you must not have done your financial planning which is the foundation of creating a sound investment portfolio & optimising tax savings. You may not achieve your financial goals if there is no financial plan along with a risk of paying more taxes. It is also highly impractical to get your financial planning done in 7 - 10 days because it needs some time. So, what should you do then?
Staying to basics when you don’t know much about anything always helps, so do not invest in any financial instrument which you do not understand. Stay away from products which make you pay regularly for the next 15-20 years; you may get in to a trap by many so called financial planners which gets mushroomed during the last few days, they are nothing but the sales agents, beware of them and follow basics.
Optimise the limit of Rs. 1,50,000/- U/S 80C!
As you must be aware that the limit of investments which you can make under section 80C is Rs. 150000/-. One should not miss optimising this benefit because whatever you invest will make your tax liability lower and thereby gives you more in hand.
For example, Manoj whose income is Rs 800,000 and he invest only half of the available Rs 150,000 limit; then he will be paying an additional tax of approximately Rs. 15,000 [i.e. Rs. 75,000*20% tax rate based on his tax slab of 20%] as opposed to an individual who has the same income but had made full investment u/s 80C.
Know all the options as available u/s 80C:
Many times people invest in only Insurance or PPF and do not optimise the other avenues to cover up their tax savings; let us see some of the main options as available under 80C:-
Investment related Options:-
- National Saving Certificate
- Premium on your life insurance policies
- 5 Year FDs with banks or Post Office
- Mutual Fund ELSS (Equity Linked Savings Schemes)
Expenses related Options:-
- Tuition fees paid for children's education (maximum 2 children)
- Principal component of home loan repayment
- Stamp Duty and Registration Charges of your house
One should always optimise the benefits in terms of investing in the list of items as mentioned above or in case they are paying tuition fees for their kids or EMIs for their house then their net investments they need to make elsewhere comes down by the said amount of fees or principal of home loan.
Mutual Funds/ ELSS; the best choice:
One of the best investment option as available in the market is Mutual Funds ELSS which apart from giving higher returns on your investments, also gives tax saving u/s 80C. One should not miss on investing in ELSS as apart from their returns, these are also low on charges, very transparent, provides higher liquidity and to top it all, the returns of mutual funds are completely tax free plus there is no obligation to continue ELSS investments for next few years unlike other investment options.
Opt for PPF investment!
Similar to a Mutual Fund ELSS investment, you can also put your money in your PPF account especially when you do not have time to plan as these two investments will never go wrong. Open a PPF account online of if you already have one then invest the remaining amount as left to cover 80C limit, though it is not the best practice to invest in any option without thorough financial planning but if there is no time left then you can opt for either of these option.
Stay alert from fraudulent agents or Misselling!
Since it is the year end, many salespersons being disguised as financial planners have to achieve their targets and they may push you in to buying various financial products which may become a bottleneck for you at a later stage or may be for the next 15-20 years, so stay alert and don’t rush in to investing in to any product without understanding.
Life beyond 80C!
Apart from covering your investment/expenses limit u/s 80C, you should also look life beyond 80C as there are various other means and options to save in taxes. Let us see some of the options you can avail tax benefits by investing or availing of them as follows:-
- Home loan: Principal you pay on your home loan gets covered under section 80C but interest on your home loan is available as a deduction up to Rs. 2,00,000/- under Section 24.
- Donations: In case you have paid some amount of money as a donation/charity to certain funds or organisations then the same is eligible for deduction as prescribed u/s 80G.
- HRA: Those who are staying on rent should submit their rent receipts to their employers to avail HRA benefits.
- Interest on Education loan: If you are paying towards an education loan as availed for pursuing higher education then the entire interest on that loan will be eligible for deduction u/s 80E. You can take this loan either for yourself, spouse or your child.
- Health Policy: The amount of medical premium you pay for your health insurance is allowed as a deduction up to Rs 25,000/- subject to certain conditions as per section 80D, plus an additional deduction is also available for the premium you pay for a policy of your parents.
- Reimbursement of Medical expenses: Up to Rs. 15,000/- will be reimbursed by your employer in a year.
- LTA: if your CTC has LTA component then you can claim it twice in a block of four years for your travel in India.
Since we are talking about investing in the last few days i.e. before March end, then it is very likely that those who are falling under this category cannot submit their investment proofs to their employers now. The time line to submit investment proofs is already over in January or February but you still do not have to loose hope as you can still claim your excess tax paid by filing your tax returns in July and claiming a tax refund. The key is to invest sensibly as mentioned above and make your financial planning a priority for next year to plan your taxes better.
So stay alert, stay smart, Happy Year ending!
About the author:
Rishabh Parakh is a Chartered Accountant & Chief Gardener of Money Plant Consultancy, a leading Tax & Investment Advisory Services Provider in Mumbai & Pune.