he last three months of every financial year see a lot of action in terms of tax savings. That is because more often than not, the tax savings process for most people only begins at the very last minute. Efficient tax planning, on the contrary, should begin at the start of a financial year. This approach helps in not only saving tax but also linking your tax saving investments to your medium- to long-term goals. The risks of making tax saving investments in a haste are manifold. From selecting an unsuitable product to ignoring the volatility or the duration could be damaging to your finance. Anil Rego, founder and CEO of investment advisory firm Right Horizons says, “Last minute rush to save taxes can cause mistakes and cash flow problems.”
The deductions available under Section 80C of the Income Tax Act of up to Rs 1.5 lakh a year includes benefits for expenses incurred as well as for investments made. The investment-related tax breaks are largely on specified investments, such as five-year notified tax saving bank deposits, life insurance premium, Employees’ Provident Fund (EPF), Public Provident Fund (PPF), National Savings Certificate (NSC), Senior Citizens’ Savings Scheme (SCSS), Equity-linked Savings Scheme (ELSS) and mutual funds (MFs). Repayment of the principal on home loan and payment of tuition fees also qualify for tax benefits under Section 80C.
Once, the investment limit under Section 80C is exhausted, one can make use of the new tax benefit introduced earlier this year. Taxpayers having exhausted their Section 80C limit of Rs 1.5 lakh a year can now look at National Pension System (NPS) to save for their retirement and in the process save additional tax. An additional deduction of up to Rs 50,000 is made available in NPS from the financial year 2015-16. For someone in the highest income slab paying 30 per cent tax rate, it’s an additional savings of about Rs 15,000 a year.
