There are various tax-saving products available in the market but apart from the common feature of helping investors save on tax, they are quite different from each other. Four experts tell us about tax-saving ideas they think are the most beneficial, for financial year 2018-19

Gautam Nayak, Partner, CNK & Associates LLP

A smart tax saving investment not only saves the investor tax, but also earns her a good return on the investment. From that perspective, three smart tax saving ideas are: voluntary contributions to provident fund, investment in Public Provident Fund and acquisition of preference shares.

Provident fund: Employees can make voluntary contributions to their provident fund (PF) accounts, over and above the statutory requirement of 12%. Not only will such PF contributions be deductible under section 80C of the income-tax Act, they will also earn a tax-free return higher than available on most taxable debt instruments. For those who are nearing retirement, this is a short-term investment that yields long-term returns.

Public Provident Fund: Maximising contributions to PPF makes sense, given the high tax-free yield (higher than that available on most taxable interest bearing securities or deposits), as well as the section 80C tax deduction that one benefits from.

Preference shares: Purchasing preference shares of companies from the market yields tax-free (up to Rs10 lakh) assured dividends. Often, the yields by way of such dividends are equivalent to the market yield on taxable instruments. If you buy the preference shares cum dividend just before the ex-dividend record date, and hold on to them for at least 3 months after the record date (so that the dividend-stripping provisions do not apply), you may also incur a short-term capital loss, which you can set off against your other taxable capital gains.

Suresh Sadagopan, founder, Ladder7 Financial Advisories

Saving taxes is something that we need to carefully plan. It cannot be an objective by itself. The investment being done should mesh with the overall needs of the person and should be well positioned to meet their goals and needs, in addition to helping them save taxes.

Three tax-saving ideas which most people can take advantage of are: equity-linked savings schemes (ELSS), Public Provident Fund and National Pension System (NPS).

All these products have different features and serve a purpose apart from tax-saving. So, an investor should study the details of each instrument well and make a choice accordingly.

Tax-saving mutual funds: Depending on the existing asset allocation of a portfolio and how much equity is needed in it, equity-linked savings schemes (ELSS) work well. The lock-in these schemes is 3 years. Equity as an asset class gives returns over time, and hence a 3-year lock-in is not so bad.

Public Provident Fund: PPF is a good low-risk investment product, which currently offers 7.6% returns. This is tax-free at withdrawal and saves taxes under Section 80C. This investment is a long-term one with a tenure of 15 years, extendable by 5-year tranches. So, the money gets locked in, though one may be able to withdraw some portions satisfying certain conditions. PPF is a good way to invest for the long term, especially for one’s retirement.

National Pension System: NPS is a contributory scheme from which one can get an annuity after the age of 60. Contributions get tax benefit under section 80C up to Rs1.5 lakh, and for another Rs50,000 under section 80CCD (1B). Through NPS, one can invest in equity as well as debt as per one’s choice. It is also a low-cost product.

Amol Joshi, founder, PlanRupee Investment Services

The new financial year brings with itself an anticipation of a better financial state that comes with annual bonus and salary increment. While we may be familiar with various tax saving avenues such as Public Provident Fund, tax-saving mutual fund schemes, National Pension System, and so on, let’s also focus on some behaviour ‘ideas’ instead of just product ideas.

Plan for the whole year, at the beginning: Use the early months in a financial year to plan tax-saving for the entire year, either via lump sum or in a systematic manner through a systematic investment plan. Save yourself the trouble of a last-minute rush and even the risk of missing the deadline for submitting proofs of tax-saving investments at the office.

Look at all features: Don’t focus only on the tax-saving quality of a product. Also, run a check to see if this product is suitable in terms of other aspects such as lock-in, taxation on maturity, payment frequency, and so on. These aspects are also important.

Check for fit in the portfolio: Importance of asset allocation can’t be stressed enough, and one can even use each year’s tax-saving amount to manage or balance the asset allocation. For example, allocate a higher share to PPF in case you have an equity-heavy portfolio. Or, allocate more to a tax-saving mutual fund scheme if you have more of traditional tax-saving instruments.

Swarup Mohanty, chief executive officer, Mirae Asset Global Investments (India) Pvt. Ltd

A new financial year brings with it new optimism as well as a need for new investment strategies in the year. Budget 2018 brought about significant changes, especially to take care of senior citizens. It also imposed taxation for equities and dividends received from mutual funds. These changes could mean reviewing one’s investment policies.

Taxation rules that were relevant earlier may not be applicable anymore, and new rules may be in place. Therefore, review the tax treatment of the products you have invested in and make adjustments if needed.

More benefits for senior citizens: The increase of interest income from bank deposits and post office savings schemes to Rs50,000 (from Rs10,000) for financial year 2018-19, as well as increase in health insurance to Rs50,000 (from Rs30,000) can be used by senior citizens for better tax efficiency.

Check tax rules for dividend option: A large part of investors had invested in balanced funds choosing the dividend option (for regular dividends). Such investors could shift to the ‘growth’ option and explore the systematic withdrawal plan, as it is a more tax efficient route for getting regular income.

Use the tax advantage available on capital gains: Since capital gains up to Rs1 lakh are tax-free, investors should create a good long-term portfolio within family members to minimize tax incidence.