December 31 is universally recognised as an important date in the Gregorian calendar. Its significance does not just lie in the fact that it is the last day of the year. December 31 is also the last date for submission of investment declaration for the year and every salaried professional is hard at work trying to meet the deadline on time.
Though one has the option of making necessary investments later after the deadline, it means paying the tax deducted at source (TDS). Also, claiming the refund after filing the return could turn out to be a tedious affair.
So, proper planning right at the beginning is the best way to avoid last-minute hassles. However, if one hasnt planned, dont worry, theres still some time to go. Here are some suggestions on making tax-related investments:
By December 31, salaried assessees are required to submit a declaration, with supporting proof, stating their investments to avail of section 80 C tax breaks, to enable their employers to compute the projected income for the year ended March 31. Based on this, the tax to be paid is deducted in three installments (January, February and March) from the monthly salary.
Inadequate planning could lead to skewed cash flows for the last quarter, with last-minute investments and tax payments causing a huge dent in the income during the period, says Prerana Salaskar-Apte, partner, The Tipping Point, an investment advisory firm.
ing right from April in a staggered manner is advisable. Starting early ensures enough time for analysing all the section of 80-C elements, their impact on cash flow and future needs. Says PricewaterhouseCoopers associate director Jayesh Thakur: Evaluate your cash flow and make a note of the payables that could crop up in the next five months.
Ascertain Your Requirement
Often, theres a tendency to invest without ascertaining its benefits. At times, while setting aside Rs one lakh for tax-related investments, many do not take into account other elements of section 80 C provident fund, existing insurance policies, repayment of principal amount on housing loan and tuition fees paid for their childrens education, informs iTrust.in co-founder Kartik Varma. Only if these payments do not help you exhaust the Rs one lakh limit should you consider other options.
Adds chartered accountant and financial planner Zankhana Shah of Moneycare Financial Planner: Your investments should offer flexibility to take care of emergency needs. While selecting the avenue, you need to ascertain if you would need the money in the near-term. Besides, parking all your money in long-term products such as insurance or PPF may not allow one to make the most of opportunities like higher interest rates and favourable equity market.
The right mix of PPF and ELSS is the ideal option, she says, ruling out money-back policies with tenures of 20-25 years, since they call for regular premium payments as you might find it difficult to sustain premium payments during low-income phases.
In the context of the current scenario, Mr Thakur feels PPF is the best option, followed by five-year tax-saver FDs, ELSS and National Savings Certificates (NSC). PPF and FDs are the only two instruments that have not delivered negative returns in the current scenario. NSC should be the last resort as the interest earned is subject to tax, although you receive the same only on maturity, he says.
Stay Away From Leveraging
Many individuals resort to taking loans to make tax-related investments due to shortage of funds during December or March, which could prove to be a costly mistake. The returns at the end of the lock-in period may not be commensurate with the interest paid. Also, the lock-in feature of tax-saving instruments prevents premature sale of such investments to repay the loan.
Look Beyond 80 C
In addition to section 80 C reliefs, one can also claim deduction for premium paid on health insurance (up to Rs 15,000 for self and an additional Rs 15,000 for premium paid for parents) under section 80 D. The investment declaration should also mention interest paid on housing loan, if any, which is eligible for a deduction of up to Rs 1,50,000 (Rs 30,000 for loans taken before April 1, 1999) under section 24. Repayment of education loan taken for self, spouse or children is another tax-saver the entire sum repaid during the year is eligible for exemption under section 80 E.