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How to plan your taxes before March 31: An A-Z guide for the last minute investor

As the financial year is almost coming to an end, the clock is ticking for those who are yet to make investments for tax purposes. 

26th Mar 2018
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As the financial year is almost coming to an end, the clock is ticking for those who are yet to make investments for tax purposes. Though some of us may have already completed the tax planning process, there are many last minute investors who are yet to plan their taxes. Many people usually tend to get overwhelmed by the tax planning process and may not be aware of tax rules, or some may just do things at the last minute. Whatever the reason might be, you still have a marginal window of time to make investments. There are a number of options available from insurance policies to tax saving FD schemes.

The first step to take is to sit down and calculate how much you need to invest. Let us now take a look at Section 80C of the Income Tax Act in India. There are a number of investments that can be made under this section and the maximum limit that can be claimed in Rs.1.5 lakh. Apart from this, people can claim a deduction for certain specified expenses that may have been incurred such as fees paid towards the education of children, LIC premium costs and also payment made towards the principal for a home loan.

Tips for last minute investors

Claim deductions under all the relevant sections that you may be eligible for

Get deduction if you have invested in the National Pension Scheme (NPS)

Make sure you keep your employer informed and submit all proofs

Make sure you are claiming reimbursements for expenses that are eligible such as rent, medical, travel etc

Avail all tax benefits for donations made

Calculate tax liability

Apart from the above expenses, one can also make a number of investments to get a tax benefit. This may include investments in 5-year tax saving FD schemes, in public provident funds (PPF) and also for the contribution made towards the Employee Provident Fund (PF) account.

Tax Saving FD Schemes: 

Tax saver fixed deposits are just like any other type of term deposit account, where you can put in money up to Rs.1.5 lakh and claim a tax deduction for the same amount under Section 80C of the Income Tax Act. All banks in India offer this type of deposit scheme, which comes with a minimum lock-in period of 5 years. It is very important to note here that though the principal invested will be exempt from tax, the interest that is earned will be subject to tax. Therefore Tax Deducted at Source (TDS) will be applicable but only if the interest income earned in a given financial year is more than Rs.10,000 for regular individuals and more than Rs.50,000 for senior citizens. Let us look at some of the features of this tax saving investment option:

This is one of the safest and most reliable options to make an investment because it offers guaranteed returns

The level of risk in this investment is almost nil to low

This type of deposit can be opened online in a matter of seconds

No premature withdrawal or loan facility will be available on such a term deposit

The interest rate paid on these time deposits range from 4% to 8%. This may vary from bank to bank

This account can only be opened by indian residents and is generally not for NRIs

All senior citizens investing in this scheme will be eligible to avail a higher rate of return

TDS on interest earned

Public Provident Fund (PPF): 

PPF is another option that you can choose to gain a certain tax benefit. It is very easy to open this account and investments of up to Rs.1.5 lakh can be made here as well. Probably one drawback of this type of tax saving tool is that it comes with quite a long lock in period, which is 15 years. There is also no premature withdrawal that can be made when it comes to PPF accounts. PPF accounts can be opened at certain banks and can also be opened at India Post, which offers this under its Post Office Saving Schemes. Let us take a look at some of the features of this option:

A depositor can claim up to Rs.1.5 lakh under Section 80C of the Income Tax Act as a tax benefit

A depositor can make investments at one go or in installments

Nomination and joint account facility is available

No premature closure

Minimum maturity period is 15 years so the funds are locked-in for this duration

Loan facilities can be availed

The interest earned is tax-free under this type of tax saving tool

Safe and reliable investment option

Guaranteed returns

ELSS mutual funds: 

Equity Linked Savings Schemes (ELSS) are also one among the best options to go for as far as tax savings are concerned. This is a type of diversified mutual fund option in the equity sector. The main advantage that this offers when compared to other tax saving schemes is that the lock-in period is the lowest. The maximum tenure of investment as far as ELSS is concerned is 3 years. This investment can be made online and the account will be opened within a few hours.

Investment can be made for up to Rs.1.5 lakh under ELSS

There is a certain element of risk involved and the returns may not be guaranteed as in the case of fixed deposits

Rate of return depends on the market conditions and performance

Investors can opt for either a dividend or a growth option

The dividend earned from this type of investment is also tax free

While ELSS mutual funds offer tax benefits, the investment does come with a certain element of risk. On the other hand, when it comes to PPF accounts, the lock-in period is very high. At the same time, tax saving fixed deposits offer a more balanced set of features - there is no risk-involved and even as the lock-in period is 5 years, it offers a decent rate of return that is guaranteed.

As an investor, it is best to understand your personal financial needs and goals, and then make a decision on where you want to put in the money. Apart from choosing any one of these options, also make sure that you submit the same investment proofs to your employer well before the deadline so that you can enjoy the tax benefits.

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