Last-minute tax planning before March 31: Here are some tips

The deadline for tax-saving investments for FY2021-22 ends on March 31, 2022. That leaves barely a couple of weeks for all those late risers. Here are a few tips you should keep in mind.

Make investments and important spends (Section 80C)

Contributions up to Rs 1.5 lakh in a given financial year to approved avenues such as Employees’ Provident Fund (EPF), Public Provident Fund (PPF), Senior Citizens Savings Scheme (SCSS), life insurance premium, National Saving Certificate (NSC), tuition fee, Sukanya Samriddhi Yojana (a savings scheme focused on girls), National Pension Scheme (NPS), equity-linked saving scheme (ELSS) and home loan principal repayment are deductible from the income of the individual. Though there are too many competing avenues, a careful look at them can help you plan your taxes better.

As there is not much time at hand, you may want to quickly close this chapter. However, a measured approach may work better. If you are earning a salary, you may be contributing to EPF. You could also be paying children’s tuition fees or a life insurance premium. If you have a home loan running, ask for the provisional statement of loan repayment for the year from your housing finance company. This will give you an idea of how much money you have already invested in permissible avenues under Section 80C of the Income-tax Act. If there is a shortfall, you can then invest accordingly. “Ascertaining what you have already paid which can be claimed for tax deduction purpose will help you reduce the amount of money that you have to invest,” says Parul Maheshwari, Mumbai based certified financial planner.

If there is a shortfall, you should first look at your existing commitments. These include PPF and Sukanya Samriddhi Yojana (SSY) accounts opened in earlier years. You should be contributing at least the minimum amount of Rs 500 and Rs 250, respectively, to these. If they are catering to your financial goals—say, retirement planning or a child’s higher education—you should contribute to these in line with the permissible limit of Rs 1.5 lakh per year. Payment of renewal premium of existing life insurance policies also fetch a tax break.

Also read | Here are 3 options once your PPF account matures after 15 years

If you do not have existing commitments mentioned above, you have to identify your financial needs and invest accordingly.

Do not rush into purchasing a house with the help of a home loan or buy a traditional life insurance policy or unit linked insurance plan with large regular payment commitments. If such purchases do not cater to your needs, they may be a drag on your finances as they are long-term commitments and best decided after due diligence. “When you are in a hurry, stick to simple products such as NSC or ELSS, taking into account your financial needs and risk profile,” says Pankaj Mathpal, founder and managing director, Optima Money Managers.

Also read | Sukanya Samriddhi Yojana is a good investment for your daughter, but it’s not enough

If you have exhausted Section 80C, look at Section 80CCD1B that offers an additional Rs 50,000 tax deduction if you invest money in NPS. This is over and above the tax deduction availed under Section 80C.

Conservative investors can consider NSC and in the case of senior citizens, SCSS is better if you are not already invested. For aggressive investors, ELSS or tax-saving funds as they are popularly known make sense. Among Section 80C investments, ELSS has the shortest lock-in of three years and has the potential to offer high returns. But since it invests in shares, it may not suit all investors, especially the conservative lot. “Correction in the stock market has given a good entry point for ELSS now. Also, if you are keen on accumulating a large corpus in the long term, start a systematic investment plan in ELSS after April 1. It will also bring down timing risk,” says Vijai Mantri, co-founder and chief investment strategist, JRL Money.

If you do not have life insurance cover, you can buy a term life insurance policy after taking into account your insurance needs.

Don’t forget to buy insurance (Section 80D)

Payment of health insurance premium up to Rs 25,000 towards health insurance for yourself, your spouse and children can be claimed under Section 80D. If you are buying health insurance for your parents, an additional Rs 25,000 can be claimed in a year. In case the insured persons are senior citizens, double the amount (Rs 50,000) for self and family and parents (totalling Rs 1 lakh) per year can be claimed.
Many individuals rely on employer-provided health insurance. Such cover ceases to exist when they switch jobs. Hence, it makes sense to buy health insurance for your family on your own. “Buy health insurance cover for a sum assured that you need and you can afford. Affordability is also important, as you have to keep paying premium every year,” says Maheshwari.

If you have undergone a preventive medical check-up in the current financial year, you can claim expenses up to Rs 5,000 under Section 80D.

Some quick tips

• "Do not wait till the last few days of the month. If your cheque does not get credited before the year ends, the investment will not be considered for the current year,” points out Mathpal.

• If you have invested in some ELSS earlier, check the performance. Even if it is an average performer, you can add to it. You need not invest in last year’s winner. “Performance of most well-managed schemes converge over a period of time,” says Mantri.

• If you do not have money to invest in this year, look at past investments for some help. For example, if you have some old ELSS units which are out of lock-in, then they can be sold and the proceeds invested again in the same scheme to claim deduction.

• More important, after you are done with this year’s tax planning, make a plan for next year and implement it as soon as you can.