Tax Planning: Why wait till the end?

By Pankaaj Maalde, Apna Paisa

Most of the salaried people have to submit their investment proofs in a month or two to their employer to claim deduction u/s 80-C. It is a long history that most of the people plan for this at the end of the year and end up buying instrument, which may not be in line of their financial need.

This also applies to businessmen and professionals who also wait till end to plan for tax planning. Nearly 70 to 80% of the life insurance business happens in the last quarter of the year and this JFM quarter is like a season for insurance professionals.

We all know very well that every year we have to save Rs. 1 lakh to claim tax benefits u/s 80-C of the Income tax, but still we wait till end and end up buying wrong product. It is not at all advisable to wait till end and end up buying unwanted product in your portfolio.

Now that you still have few months to finalise the best product available for tax benefit, which can  also be linked to one of your financial goals. Here are some tips for tax planning if you are looking for tax saving instrument.

• Calculate what is the exact amount still pending for investment to get the benefit u/s 80-C. If you are not sure then  consult your C.A. or Tax Consultant. You can also consult Financial Planner who can also guide which product is good depending on your financial goals.
• Buy Online Term Plan to protect your family in case of unfortunate event. This is very much important and has to be given top priority. Calculate exact life cover required depending on your expenses and future goals.
• Avoid other Insurance products, as you will be not having time to assess and compare the products for the long-term benefit of yourself and your family. Insurance products are loaded with irrecoverable charges, which need to be assessed & analyzed. Do not commit yourself for long-term premium payments unless you very well understand the features of products you are buying.
• Finalise your asset allocation and be sure where your investment has to go. Whether you would like to go for risky products for higher returns or want capital protection fund.
• Businessmen and professionals must consider P.P.F. investment for tax saving, as it gives 8% tax free return which is the best in debt category. You can deposit upto Rs. 70,000 per annum in one financial year. This is likely to be increased to Rs. 1 lakh soon.
• Principal payment of your home loan EMI is also eligible for tax benefit.
  NSC. interest is also eligible for tax benefit but the interest is chargeable to tax as income from other source.
• Tuition fee for two children is also eligible for tax benefit.
• Mutual Fund ELSS schemes are best for those who would like to invest in equity and want to participate in growth story of India. ELSS schemes have lowest lock-in period of 3 years.
• Do not buy any fixed income instruments with lock in period of 5 years. Rather invest in ELSS schemes of mutual fund, as the 5-year time horizon is very good for equity investment.
• You can also buy health insurance products or increase your family cover for mediclaim and get additional tax benefit of Rs. 15,000 u/s 80-D of the Income Tax Act. You also get additional Rs. 15,000 benefit for covering your parents ( Rs. 20,000 if they are senior citizens).
• You can also avail the benefit of investing in infrastructure bond for one time benefit for F.Y. 2011-2012 u/s 80-CCF up to Rs. 20,000.

One also has to plan his tax planning this year in such a way that it also matches with the DTC, if passed in next budget. As per DTC Draft Bill, Life Insurance Premium will qualify for deduction only up to Rs. 50,000 only, compared to available deduction of Rs. 1 lakh at present. The overall limit of Rs. 50,000 as per new section 73 of DTC, includes life insurance premium, health insurance premium and tuition fee paid for two children. 

The following investments shall also be not eligible for deduction after DTC is passed. One also needs to check this before cheque is written.

1) Payment of Housing Loan Principal
2) ELSS schemes of Mutual Funds
3) Fixed Deposits with Banks
4) National Saving Certificates
5) Term Deposits of Post Office

Every investment has its own risk and also some charges in built. If you do not give your valuable time today to assess this, then it will result in monetary loss. This decision can also spoil your financial plan.