Tax Planning: Important that we do our planning timely

By Anuj Bhagia

Every year all of us sit before the TV set and watch our Finance Minister read out our General Budget, with whatever little knowledge we have, we make our own presumptions about how good or bad the budget is for us. Thus when it comes time for us to submit or proofs in our respective offices or to our CA’s we start scurrying for answers, answers which can help us save maximum amount of Tax. Who doesn't want to save on tax? Thus in this quest of ours to save the maximum possible in the best product we usually end up making a few wrong investments. These wrong investments usually happen around the time of December & January, when we get a email reminder from CA’s or our Finance team at our place of work, requesting us to submit proof of investments done by us. 

Tax planning is not difficult if we take even a wee bit interest in the same. Infact, as I believe it this form of forced savings usually end up saving us from a financial mess, which may happen at the time of our retirement. Thus it is important that we do our planning timely and with little focus on products that can help us both save tax and fetch returns. Here is what you need to to know, to help plan for saving the maximum amount. 

Know the sections you can save the most in

Section 80C is where a tax payer can save the maximum amount of money. But, what we all do not know is that Life Insurance Premium, Mutual Funds & PPF are not the only option in the same. For people with kids you can also avail of benefits on Tuition Fee paid under section 80C. Similarly, Principal Component of the Housing Loan is also eligible for Tax deductions under the same section. Thus you need to know of all such options. What many of us do not realize is, that by adding such simple things as Tuition fee we could have already, registration charges paid for a house we may have already crossed our Rs. 1 Lac investment cut off in section 80C.

Diversify your investments

Keeping all your eggs in one basket is never a great idea. Even though investing the complete Rs. 1 Lacs in insurance or an ELSS can help you save tax, but it is important that you diversify and broaden your horizon while looking to invest. Each and every investment instrument comes with it’s respective investment guidelines thus the returns they offer are not similar. By diversifying you will ensure that you are not reliant on only one security for growth & security. Taking an example, ULIP’s invest majorly in Equity market, Life Insurance in Debt, ELSS is again Equity whereas NSC and Post office deposits largely in government bonds and money market instruments. 

Goal Based Saving

Public Provident Funds have a Lock In of 15 yrs, Unitlinked Insurance Plans & Life Insurance Policies have a lock in of 5yrs, similarly Tax Saving Fixed Deposit with Nationalized Banks have a lock in of 5yrs. Thus you need to know the investment that you are making how soon can the same become liquid & available to you for re-use. Thus all good financial planners advocate goal based savings, if you have a specific goal in mind then the number of investments you are looking at can be considerably knocked down fast to arrive at a best possible result.

Health Insurance

Health insurance is steadily gaining momentum and one of the reasons for the same is the ever rising cost of medication & hospitalization. Under the section 80D, Rs. 15,000 savings is available on premiums paid for self, spouse and kids. Additionally, Rs. 15,000 more is available in case the premiums have been paid for parent’s (Rs. 5,000 additional incase of senior citizen parents). 

What a individual needs to be careful with here is, that a office provided Group Medica cover will not help them get a tax deduction as the premium for the same is not paid by them, but the organization. Thus this should not be taken into account.

Look at not so popular sections

Other than Section 80C and 80D, there are other few sections like section 80G which helps you get deductions on charities made to specific organizations, similarly you can also get deductions on, Permanent Physical disability (self) u/s 80U and also for a cost of treatment paid for a physically disabled relative u/s 80DD & 80DDB.

Tax planning is not difficult if started at the right time and with the right mindset. All we need to do is to compare before we make an investment.

The author is Head Marketing & Corporate Communications,

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