Are you one of those people who scurry around every year during the last few days of the year to complete your tax saving investments? There is evidence of increased activity among taxpayers to invest in tax-saving investments to provide proof of tax-saving investments and save taxes. However, for the salaried class, the heightened activity is during the last 3 months before the financial year close – January, February and March. This rush to save taxes is just before the year end to avail the tax saving benefits. Such last-minute rush always leads to mistakes or haphazard investments which do not align with your financial goals or your risk profile.  Here are tips on how to plan your tax-saving investments efficiently.

Know your basics

Section 80C:

This is one of the most basic deductions applicable to every individual or Hindu Undivided family (HUF). Investments up to Rs. 1.5 lakh per year can be availed as a deduction from your taxable income. Further, an additional Rs. 50,000 is allowed towards investment in NPS under section 80CCD(1B).

The investments allowed under section 80C are an Employee provident fund, public and employee provident and super-annuation fund, term deposit with min. 5 years lock-in, tax-saving bonds, an equity-linked savings scheme, post office deposits – National Savings Certificates (NSCs), life insurance premiums, school tuition fees, principal repayment of home loans, etc.

  1. Section 80D:
    Both Individuals and HUF can claim a deduction from your taxable income towards premium payments to health insurance. The expenses and premium incurred against preventive health check-ups and health insurance for oneself, spouse, dependent parents and children.
ParticularsDeduction for self & familyDeduction for parentsTotal Deduction
Self and family only (age below 60 yrs)25,00025,000
For Self (family) & Parents (both below 60 yrs)25,00025,00050,000
For self (below 60 yrs) and parents (above 60 yrs)25,00050,00075,000
For self and parents (both above 60 yrs)50,00050,0001,00,000
  1. Section 24:
    This pertains to the quantum of interest amount paid by the person towards home loans. This is also referred to as a deduction from income from house property. The section always allows you to gain tax exemption to the extent of the interest amount paid towards your house loan.

    Under section 24(B), up to Rs. 2 lakh is allowed as a deduction towards interest on a home loan in case of self-occupied property. In the case the house is a let-out property, then the entire interest amount is deductible after being adjusted against the net rental income received by the individual.

Top 3 tips for planning your taxes:

Here are the top 3 tips to plan your taxes efficiently to increase your post-tax income.

  1. Start early, invest consistently:
    Now, the big question in everyone’s mind is how early one can start investing towards tax savings. The answer is at the start of the financial year. Also, it is always a good time to start investing.

    Often starting early can be beneficial as it will not burden your pocket. A monthly sum of less than Rs. 10,000 per month should take care of most of your tax-saving investments.

    For an avenue like ELSS (equity-linked savings scheme), you can choose the systematic investment plan. This will enable you to avail of the rupee cost averaging. It will substantially reduce the risk associated with the product.
  1. Remember to insure:
    Hedging your risk is not only the most sensitive aspect of financial planning, but it can also be an integral part of your tax saving exercise. The premiums paid towards life insurance and health insurance qualify for tax benefits, as indicated earlier. Both these aspects have to be thoroughly evaluated, and the quantum of term cover should align with your requirement. Often, employers offer medical coverage.

    However, from the pandemic, we have learnt that such coverage may fall short during the time of need. Further, such group insurance is not customised to one’s needs. Hence it makes sense to avail of a separate medical cover which is customised to include medical conditions about yourself and your family. This will ensure that there is comprehensive coverage. 
  1. Avail help if required:
    Often, the last-minute rush could be due to the lack of time. For many, the entire exercise of investing and saving could be overwhelming. It is advised that you reach out to professionals who can help you understand the process and also provide you with the required assistance to carry out the investment efficiently.

    The experts at TATA Capital Wealth help you assess your financial goals and align your tax savings investments alongside your goals. They also ensure that you are given ample input regarding the investments to help you assess the risk-return framework of the investment and ascertain if it is the right fit for you.

In a nutshell:

Irrespective of what investment you make, always be in the know of where your money is going. Do not fall for fads and traps which could potentially lead to losses on your investments. The only way to make informed decisions is to gain enough knowledge about the avenue. Compare across options and choose the one that aligns well with your financial goals and risk profile. Look at tax planning as a part of your financial planning exercise. This way, you would be able to build a comprehensive corpus which takes care of your tax planning and your financial goals simultaneously.

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