In the nick of dime


Experts advise on last-minute tax-saving investments

Have you been tardy with your tax-saving investments? Speed up! For, in a month from now, the financial year will come to an end. It is high time you got your finances in order. Even if you are an active investor, it makes sense to take a stock of your investments and if there is something missing, you still have time to invest.

If you have not made any investments thinking that employee provident fund will take care of your deductions, you might be wrong. Only the EPF contribution made by the employee is eligible for tax deduction. But there are other rebates available under various sections.

“Mostly, people just look at section 80C and plan their investments accordingly. But there are many more options available such as sections 80CCD, 80E and 80G. One can choose an option that suits their needs,” says Suresh Sadagopan, founder, Ladder7 Financial Advisories.

Experts say even under section 80C, there is a plethora of products with different tenure, taxability and minimum investment requirement that give good returns along with tax benefit. There are debt instruments such as bank deposits with a minimum period of five years, endowment life insurance plans, PPF, National Savings Certificate and Senior Citizens Savings Scheme. In these products, returns are fixed for entire duration and are generally in line with rates prevalent in the economy and close to the inflation figure. They suit conservative investors whose aim is to preserve capital rather than create wealth.

“In debt products, net returns is what matters the most,” says Sadagopan. “Look for a product that is under exempt, exempt, exempt, which means that interest and maturity amount are tax-free. A lot of people invest in fixed deposits but interest in a FD is taxable, so effective interest rate in bank FDs comes to somewhere around 5.5 per cent. If you discount for inflation, it goes down further. Therefore, bank FDs are not suited for people in the young age bracket.”

Then, there is the option of equities. But, there is just one pure equity product that qualifies for tax deduction under section 80C—ELSS or Equity Linked Savings Scheme. ULIPs also come under this category, but they neither fulfil the need for insurance nor of an equity product. So if you are looking for higher returns as well as tax exemption, then ELSS is the product to go for. There might be fluctuations but over a longer term, if equities perform well, ELSS can give you good returns. “Investing in an ELSS and aligning it to a long-term goal like retirement planning can go a long way in earning higher pre- and post-tax returns as compared to other options eligible under section 80C,” says Hemant Rustagi, founder, Wiseinvest Advisors.

If you have exhausted your annual section 80C limit of 01.5 lakh, you can also look at National Pension System (NPS) to save towards retirement and, in the process, save additional tax. From 2015-16 onwards, an additional deduction of up to Rs 50,000 under section 80CCD (1b) for investment in NPS is allowed. For someone in the highest income tax bracket of 30 per cent, it is an additional annual saving of about Rs 15,000.

The premium paid towards a health insurance plan for self and family members qualifies for tax benefit under section 80D for Rs 25,000; for those above 60 years, it is Rs 30,000. If one has a home loan, interest payments can also be claimed under section 24 of the Income Tax Act. Other deductions include donations under section 80G and interest payments under section 80E for education loan.

“The other way to get a rebate on tax is to claim expenses eligible for tax deduction. If one has incurred expenses that are eligible for deductions, then one must accumulate all the expense receipts or proofs so that they can be produced as and when required. Expenses like school fee, housing loan principal repayment, interest paid on housing loan [if someone doesn't have the housing loan, he can claim HRA] are eligible for deduction,” says Sushil Jain, national head, financial planning, Bajaj Capital.

Tax planning at the last minute needs a dedicated strategy and not a copy paste of what your colleague or friend has done, for the simple reason that everybody’s life goals are different. “Those who are doing their tax-planning at the last minute should also see what kind of investments are feasible quickly,” says Shalini Dhawan, financial planner and cofounder of Plan Ahead Wealth Advisors. “For example, investing in an ELSS or NPS is easy and can be done online as well. PPF can also be opened easily. But, say, for health insurance, you might have to get tests done, which will take lot of time. So, look at products that can be invested in quickly if you don’t have time. That is not to say that choose wrong products.”

Investors who are yet to do their bit for saving taxes must avoid the mistake of investing in a haphazard manner, says Rustagi. “Tax payers must also make a commitment to plan for their tax-saving investments at the start of next financial year and follow that every year,” he says. “By assessing the tax liability at the start of the year and ascertaining how much to invest in different options brings in a discipline in one’s investment process,” says Rustagi.

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