In a few days, 2018 will become a thing of the past. As salaried employees, many of you may have already completed the annual income tax exercise of submitting the investment declaration and investment proofs to your employers. For those still waiting, you have a few days to clear your tax investment declarations and you better get on to it fast.
Don’t rush and make ad hoc investments just to save tax. Remember, haste makes waste. Take little time out, do a little research, and then invest in suitable tax-saving products.
If year-end work pressure is cutting your time short, relax, this article is just for you. Here are a few last minute tips which will help you cope with the tax season just fine.
Optimal use of allowances
If you are salaried, make optimal use of the allowances provided. Allowances such as House Rent Allowance (HRA), Leave Travel Allowance (LTA), and Medical Reimbursement, etc. can help you cut down on tax.
Some of you may have already provided proof of expenses under these allowances. However, if you have incurred additional expenditure in terms of travel or medical expenses, and have not fully utilised the limit provided, you can save a bit more on tax outgoes.
ELSS is vital to your tax planning
If you are seeking long-term wealth creation, then tax-saving mutual funds or ELSSs will be the best route. Though the long-term capital gains are now taxable, they still deliver inflation-beating returns. Thus, ELSSs should form a vital part of your tax-savings portfolio.
Also, before you scatter around trying to understand how to make the most of the Rs. 1.5 lac deduction limit, you could look at diverting some funds into ELSS. Not only do they offer higher returns than any other Section 80C investment, but also have the lowest lock-in period of only 3 years.
Make the most of the 1.5 lac deduction limit
Reasonable decision investing under Section 80C can be a daunting task for any individual, because of the slew of options available. But in case you have money to spare – more specifically for tax investments, then I will advise everyone to ignore the different options and invest the entire limit of Rs. 1.50 lakh in a single product or a mix of few products such as PPF, Bank tax-saving deposits, tax-saving mutual funds or Equity Linked Savings Schemes (ELSS) etc.
Look beyond Section 80C
For many, tax planning starts as well as ends with Section 80C of Income-tax Act, 1961. However, investing only in these investment instruments will not optimally reduce your tax liability. There are many other options available apart from Section 80C, which you should look into. Thinking beyond 80C may help you save more for your other financial goals.
If you pay medical insurance premium for your parents (irrespective of whether they are dependent on you or not), you can claim an additional deduction of up to Rs. 30,000 in case your parents are senior citizens or Rs. 25,000 in other cases under this section. Other sections such as Section 80G, Section 80TTA, etc. can help you reduce the tax outgoes further.
Most importantly, be aware and use all the permissible deductions to save tax. Do submit your investment declaration proofs on time and avoid procrastinating till the last minute.
Rahul Jain, Head, Personal Wealth Advisory, Edelweiss