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Did you max the tax benefits?
April, 11th 2016

Praveen Kumar R, a quality management professional, works in project support and management with a large pharmaceutical company.

In his mid 20s, residing in Chennai, he is in the 20 per cent tax slab and has been diligently filing IT returns since his initial working days.

“Being single and sharing an apartment with my friends allows me to save a large percentage of my income.

I use it towards maximising my tax savings by contributing to investments that offer Section 80C benefits,” he says.

Around ?30,000 is deducted towards provident fund and ?50,000 goes towards life insurance — a mix of term insurance and whole life, he adds.

What about the balance? “I opened a PPF account two years ago. I electronically transfer ?6,000 before the fifth of every month, which tops up my 80C contribution,” he adds.

To maximise tax exemptions, he is investing ?50,000 in the Rajiv Gandhi Equity Savings Scheme. Additionally, he is investing around ?15,000 every month in mutual funds, some of which is channelled towards ELSS schemes. Why the ELSS then? “Although I have exhausted 80C limits, my mutual fund investments are for the longer term,” he says.

Making use of a benefit overlooked by quite a few, he says, “I submit rent receipts to my finance and accounts department that goes towards HRA exemptions.”

What about medical cover? “I am young and my employer provides a generous health cover.”

So, does he plan to change the pattern this fiscal year? “I don’t think so. Probably I may lean towards ELSS investments if there is a further drop in the PPF interest rate.”

‘I also invest for 80C &80D benefits’

Kaushik S is in his early 30s and works in the information technology space as a project manager. He lives with his wife, also employed, and daughter in Chennai.

At the highest tax paying slab of 30 per cent, he has maximised his 80C and 80D benefits for the last few years and has been filing his own IT returns for the last six to seven years as well.

So, how did he approach tax planning in financial year 2015-16? “I have allocated my investments equally across ELSS, life insurance and the recently launched Sukanya Samriddhi Yojana (SSY) scheme for my daughter, who is a little more than a year old,” he says.

While these investments are across asset classes and also cover his life insurance, he makes ELSS mutual fund investments in February and avoids SIP investments. Why so? “In January, there is clarity from my employer towards final tax dues. Once I am aware of this residual amount, investment is made in February,” he explains.

What about provident fund deductions eligible under 80C? “I do not take PF that is deducted from my salary into consideration,” he says. He also maximises deductions of ?25,000 on 80D by buying medical insurance cover for himself and his parents. Does he see any change in FY2016-17? He wraps up with a single word “No”.

‘Mostly through PF’

Bengaluru-based Anantharaman is in his mid 40s, and lives with his wife and teenager son.

A qualified cost accountant, he works for an Indian multinational in the finance and accounts area. He has been in the 30 per cent tax bracket for several years and is quite tax savvy, filing his IT returns for almost 20 years.

“Almost two-thirds of the 80C deduction is taken care of by my PF contributions as my basic pay is large,” he says.

For the balance, he invests ?30,000 in an endowment plan towards life insurance and ?35,000 towards a term insurance plan, comfortably exceeding the 80C limits.

“Earlier, my life insurance contribution was larger. I have rationalised it over the last several years by surrendering several of my policies, the only one that I have retained ends in the year 2021. I will continue paying premiums till such time,” he says. He adds, “Also, I have a housing loan. The principal and interest payments will easily exceed the current IT limits.”

Although he has a sizeable balance in his PPF account, he is contributing a minimum of ?500 every year to keep it active. To partly fund his retirement, he is banking on this corpus by rolling his account for the minimum slab of five years.

While his employer provides health insurance benefits, he has taken separate health insurance coverage for himself and his family (80D deduction), towards which he contributes around ?15,000 per year.

Has he invested in ELSS?

“Not yet, but I may start an SIP during the current fiscal to get some equity exposure with an eye to build my retirement corpus,” which most likely is the only modification to his tax savings plan.

‘Retirement corpus through tax savings’

Natarajan Nagoji is in his late 50s and holds a senior position in a shipping and logistics company in Chennai.

His retired father, wife and employed son stay with him in an apartment which is owned outright.

Falling under the highest 30 per cent tax slab, he takes the assistance of his chartered accountant to file his IT returns which he has been doing for almost four decades.

He invests almost double the 80C limit. “The provident fund deduction in my salary is almost a lakh, my life insurance contribution is around ?50,000 and I contribute a minimum of a lakh towards my public provident fund,” he says.

Why does he then exceed the limit? “Although I do not plan on retiring, given my age profile, the PF and PPF corpus is my retirement kitty. I want to build a substantial corpus,” he explains.

“I have not taken any loans and will continue to roll over my PPF account a few times as it provides EEE benefit,” he says.

What about emergency funds? “The balance in my bank account will take care of any immediate and urgent requirements. I also have a health cover for which my annual premium is around ?25,000. I am banking on this towards any medical emergencies,” he adds.

So, did he redeem his equity or mutual fund investments to balance his risk profile?

“Lumpsum mutual fund investments have not worked out as well as I had expected them to. I pulled out all my amounts and stopped investing a couple of years back,” he says.

Does he contemplate making any changes to his tax planning in the 2016-17 fiscal?

“I am happy the way things are and broadly do not expect any change,” he concludes.

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