A term policy can help your family get financial support after your death. Term policy provides pure insurance cover with no investment benefits.
Tax planning should be a regular and a continuous process, and not once-in-a-year formality. To avoid last minute hassles, it is best to start saving early by opting for tax efficient saving instruments. However, if you haven’t been able to accomplish the goals this year, then you don’t need to worry as there are some last-minute tax saving ideas to help you sail through.
Go for life insurance term plan
If you have not yet taken adequate life cover for yourself, then you are putting your family at a high risk. A term policy can help your family get financial support after your death. Term policy provides pure insurance cover with no investment benefits. A tax deduction benefit of up to Rs 1.5 lakh is allowed under the Sec 80 (C) of the Income Tax Act. You can buy life insurance term policy through offline mode or directly using the online mode. While buying through the offline mode, you may need to pay higher amount because of agent’s involvement and it could be time consuming, but if you buy it online, then you could save money as well as the processing time will be fast.
Invest in an ELSS – tax saving fund
Equity Linked Savings Scheme (ELSS) is an equity-oriented tax saving mutual fund scheme, which allows a deduction under section 80 (C) for an amount up to Rs 1.5 lakh in a financial year. The lock-in period for such investment is three years. The return on ELSS investment depends on the equity market situation, however, in the last few years it has given very attractive return. If your KYC is complete with the mutual fund company, then you can use the online mode to invest in the ELSS. You have the option to invest in instalments i.e. through SIP or a lump-sum amount. For a last minute investment, lump-sum option is the most suitable one. The return on ELSS after 3-year period is subject to tax on capital gains prevailing at the time of redemption.
Tuition fee and interest on education loan
You can also get the tax deduction benefit under Sec 80 (C) up to Rs 1.5 lakh for payment of tuition fee for your kids. The school or college should be based in India and it should be registered as per applicable norms. The tuition fee benefit is allowed for up to two kids. If you have taken an education loan for your children, then you can claim tax deduction under Sec 80 (E) for the interest paid on such loan in a financial year.
Health insurance cover
The premium paid by the health insurance up to Rs 25,000 by an individual (under 60 years of age) for self and family member, including spouse and children, is allowed for deduction under Sec 80 (D) of Income Tax Act. An additional benefit of tax deductions up to Rs 30,000 is allowed for premium paid for the health insurance of senior citizen parents under the Act. If the age of the parents is less than 60 years, then the deduction ceiling is Rs 25,000. If the age of the individual as well as his/her parents are above 60 years, then the total eligible deduction allowed under Sec 80 (D) is up to Rs 60,000. Let's check out how much tax you can save by buying a health policy:
Invest in NPS
Under Sec 80CCD (1b) you can get extra tax deduction benefit of Rs 50,000 over and above Sec 80(C) by investing in National Pension Scheme (NPS). Benefits of NPS come after retirement, so it is a good tax saving investment instrument for people who are also planning for their retirement goal.
Other tax saving investments
Some other investment instrument under Sec 80 (C) that you can use to save tax includes PPF, NSC, tax saving FD, Sukanya Samridhi Yojna (SSY) etc. Such tax saving options are best suitable for the risk averse investors. At present interest on such investment options are not very attractive but in the last minute it can help you to save the tax. While investing in these investment instruments, take care of things like tenure of investment, liquidity, lock-in requirement etc.
A final word of caution is to remain vigilant as you should not commit a mistake while fulfilling your last minute tax saving obligations.(The writer is CEO, BankBazaar)