Managing Your Cash Outflows is a Definite Way to Increase Disposable Income in Your Hands. We Usually Do Not Like to Wait for the Good Things in Life. We Want Them, Here and Now. Well, Then Why Postpone Something as Tempting as…reducing Your Taxable Income? We Often Wait Till the Last Moment and Get Into a Mad Rush to Meet Our March 31 Deadline. Most of the Time This Results in Tax Planning in Haste and Not Aligned to Our Overall Financial Goals. Here’s How to Sidestep This Rut.
1: Investments in Tax-saving Avenues is Not Always Required
Before Deciding the Avenue for Tax Saving, One Must Check the Value Required in the Relevant Sections to Achieve the Maximum Deduction Permissibly. We Would Suggest You to First Look at the Expenses Permitted as Deductions as Per the Current Year’s Income Tax Provisions. E.g. Section 80c Allows Expenses Such as Home Loans Principal Repayments, Life Insurance Premiums, Children’s Tuition Fees and Your Provident Fund Contribution Under EPF. Only if You Have Not Hit the Rs 1.50 Lakh Limit Under Section 80c, Should You Consider Any Other Investment (Such as PPF, NSC, ELSS or 5-year Bank Deposits) to Save Tax. As the Tax-saving Investments Are Subject to Lock in and if There is No Limit Left in Permissible Maximum Deduction Then You Are Better Suited to Invest in More Liquid Avenues.
2: Maintain Portfolio Asset Allocation
Some of the Traditional Tax-saving Avenues Are Fixed-return Instruments. E.g. Senior Citizen Savings Scheme, 5-year Bank Deposits, NSC and PPF. But Under the Tax-saving Umbrella, There Are Also ULIPS, ELSS, and the NPS, Which Provide an Equity Exposure. This is Why You Must Always Approach Tax Planning From the Perspective of Your Overall Portfolio. Your Tax Strategy Will Have a Different Meaning and Emphasis Depending Upon Your Circumstances and Risk Capability. For Instance, if Your Portfolio is Heavily Tilted Towards Fixed Income Instruments, Consider a Mutual Fund Scheme From the ELSS Category. It is Imperative to Obtain an in-depth Understanding of All Investment Avenues and Choose Suitable Ones That Will Help You Achieve Goals First and Then Save Tax. When Buying an Investment, Ask: What Are the Portfolio Consequences/impact of This Current Addition?
3: Pay Attention to Insurance Premiums and Insurance Cover
While Insurance Premiums Paid Are Permissible for 80c Deduction, You Should Note There is a Certain Caveat to It. There Are Two Conditions for Availing of Income Tax Deductions on Insurance Premiums. 1st – the Policy is in the Name of the Taxpayer, the Taxpayer’s Spouse or the Taxpayer’s Children. 2nd – the Premium Amount is Less Than 20% of the Sum Assured if Policies Are Issued on or Before March 31, 2012, and 10% in Case of Policies Issued on or After April 1, 2012. In Case of Policies Taken on or After April 1, 2013, in the Name of Any Person Suffering From a Disability or Severe Disability Referred to in Section 80u or Suffering From Disease or Ailment as Given in Section 80ddb, the Limit Will Be 15% of Capital Sum Assured.
4: All Types of Tuition Fees Are Not Permitted for Deductions
When the Word Tuition is Used, It is the Fee Paid for a Full-time Course to Any School, College, University or Educational Institute Situated in India. It is Not Private, Out-of-school Tuition. Neither is It for Fees Paid Abroad. The Caveat is That It is Limited to Two Children Only.
To Conclude We Would Say That if You Want Your Money to Work Towards One Goal, Which is Creating Wealth, Ensure That You Approach It in an Orderly Fashion. Your Investment Plan Must Be Proactive, Not Reactive. Thus Tax Saving Should Be in Sync With the Overall Strategy and Not a Hurried Exercise at the Fag End of the Financial Year, Where You Pick Simply Invest at the First Available Avenue Due to Deadline From Your HR Team. Tax Optimisation of Individual Financial Products Has to Be the Last Step in the Overall Financial Plan and Not the Basis for Selection.
