How to plan your taxes at the nick of time

Do you often get nervous and feel overwhelmed when it comes to tax planning? Fret not! You are not alone. As another financial year is coming to a close, most people are worried about how to plan their taxes before March 31. If you plan carefully, you can save a lot of money. In this article, we will tell you how to plan your taxes in the right way at the nick of time and where to put your money in.

tax saving

Let us first take a look at the investments that you can make at the last minute in order to gain a tax advantage:

  1. 5-year Tax Saving Fixed Deposit: All banks in India offer tax saving term deposits that comes with a tax benefit. This is one of the most safe and popular investment options in the country. Under this type of investment scheme, a deduction of up to Rs.1.5 lakh can be claimed under Section 80C of the Income Tax Act in India. The principle that is invested in this type of FD is completely tax free. On the other hand, the investor will be taxed for the interest that is earned on the deposit if it crosses a certain prescribed limit. FDs also come with different payout options such as monthly, quarterly, half-yearly and yearly. This allows investors to earn interest even during the lock-in period, if they choose to. Let us now look at the features of a tax saver FD:
  • Safe and reliable investment option
  • Easy to open
  • TDS applicable only if interest earned is more than Rs.10,000 in a financial year and Rs.50,000 in the case of senior citizens
  • Almost no risk involved and offers guaranteed returns
  • Comes with a mandatory lock-in period of 5 years
  1. Equity Linked Saving Schemes (ELSS): Equity Linked Saving Schemes are another popular investment option when it comes to tax saving. ELSS is a type of equity mutual fund and helps you grow your money while also gaining a tax benefit on the same. This comes with a much lesser lock-in period and at the same time the rate of return is comparatively higher. The deduction that can be claimed here is the same as FDs, which is Rs.1.5 lakh under Section 80C of the Income Tax Act. Let us now look at some of the features of ELSS funds:
  • Provides you a platform to put in money in the equity market
  • Investments can be made through the Systematic Investment Plan (SIP)
  • The returns gained from this type of investment will not be subject to tax
  • The lock-in period as far as ELSS funds are concerned is 3 years
  • There is also an option to go for a dividend payment scheme through which you can earn interest on the investment
  1. Insurance: One of the other added benefits of having an insurance policy, both life and health, is that you can also gain a tax benefit from it, apart from the other benefits that can be obtained from any type of insurance policy. Those who have health insurance can claim a deduction of up to Rs.25,000 for the payment of premium. This can be claimed for self as well as dependents such as wife and children. For senior citizens the deduction limit is only higher. Life insurance too, on the other hand, is eligible for tax deduction for the premium that is paid on the insurance policy. Let us now look at some of the features of insurance:
  • For health insurance policies tax exemption can be claimed under Section 80D
  • Deduction can be paid for the total amount of the premium paid in a given financial year
  • For life insurance, benefit can be claimed under Section 80C of the Income Tax Act
  • When it comes to premium, it should be within the prescribed limit
  • If you do not hold an active policy the benefit cannot be claimed
  1. Public Provident Fund (PPF): One of the other avenues to save tax is through a traditional and long-term investment option like a PPF deposit account. One of the drawbacks of this type of tax saving tool is that it has quite a long lock-in period. However, complete tax exemption can be obtained from these type of investments. Generally, a loan can be taken against this form of investment. Now let us look at some of the features of PPF deposits:
  • The lock-in period for PPF deposits is 15 years
  • Deduction can be claimed under Section 80C of the Income Tax Act
  • The maximum limit that can be invested under this scheme is Rs.1.5 lakh
  • Both the principal invested and the interest earned will not come under tax norms
  • There is no option for premature withdrawal
  1. National Pension Scheme (NPS): NPS is a type of government investment option which is like a retirement plan. Those who are employed can make a contribution at regular intervals to this type of investment scheme to enjoy the tax benefits that come with it. Since this is backed by the government of India, it is pretty safe and there is almost no element of risk involved. Let us now try to understand the features of such a type of deposit scheme:
  • Tax benefit can be claimed under Section 80C
  • While the maximum is Rs.1.5 lakh, there is also an option to invest an additional Rs.50,000
  • A certain minimum amount will be paid as pension irrespective of the contribution amount in this type of investment scheme
  • A good rate of return can be earned
  • This is a long-term investment
  1. National Savings Certificate (NSC): An NSC is a type of government savings bond that is ideal for small-time investors who are looking for a good tax benefit. This is offered by the Indian Postal Service, which is also referred to India Post. Now let us look at some of the features of NSC:
  • Guaranteed and risk-free investment
  • Good long-term savings plan
  • Ideal for tax and saving purpose

A concluding note

While making an investment, see what works best for you and also suits your interests. Apart from this make sure all investment proofs are submitted to the employer on time. Also, other than investments, also make sure you submit reimbursement bills and expenses incurred by you that may be eligible for a tax benefit.

 

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