If I ask you about the first day of the year, chances are, January 1 or perhaps the day after Diwali come to mind. But I refer to a different kind of new year, one defined by the world of taxes. It begins on April 1 and runs through March 31 of 2017.
Your income tax return isn’t due to be filed until July 31, but around this time every year, many people begin to look for investment avenues to help reduce their tax liability.
You are probably too late. Past March 31, you have essentially missed an entire year of investing in tax-savings opportunities that could have been applied to your 2015-16 taxes.
But don’t be disheartened. The good news is that there is no time like the end of one financial year to get a jumpstart on planning for the next one.
So in the next few weeks, think about investing in tax-saving schemes for the next financial year, 2016-17. More importantly, start investing in them right from the get go: from April.
Confused about exactly what schemes to invest in? Well, there are a variety of options out there, but life insurance and pension plans might be a good place to start as premiums paid towards these will reduce your taxable income for the next year.
Here’s how this works.
In order to encourage people to save, the government allows for a variety of investments that are tax-exempt. These investments are categorised under Section 80C of the Income Tax Act. If you are an individual tax payer (or a Hindu Undivided Family for that matter), you are allowed a certain amount of deductions for investments, expenses and payments, from your gross total income under this section of the IT Act.
Then, there are tax savings you can make under Section 80CCC. This section of the Income Tax act allows for deductions from investments in pension funds. It’s key to remember that the investment limit of Section 80CCC is clubbed with that of Section 80C. This means that the total amount you can deduct for both sections together is Rs 1,50,000.
To maximise your tax benefits, it’s a good idea to invest in a range of schemes categorised under these two different sections.
