Income tax saving is a task, especially when one is running short of funds. Planning tax investments well in advance helps avoid troubles at the eleventh hour. Here are three simple tricks that can help you to save income tax if you have made savings in the past and you do not have money to invest now. Here is how to go about it.

Withdraw from PPF and reinvest

As you know an investment up to Rs 1.5 lakh per year in public provident fund fetches you deduction under section 80C of the Income Tax Act. If you have been investing in the PPF account then you have a chance to overcome the cash shortage. You are eligible to withdraw money from your PPF account from seventh year. “You can withdraw lower of 50% of the balance available at the end of fourth year immediately preceding the year of withdrawal; or 50% of the balance stood at the end of the preceding year,” says Balwant Jain, Mumbai based tax expert.

If you have been investing regularly in PPF for all these years, you have a fair chance to withdraw money from PPF. You can invest the money into PPF or some other instrument of your choice that fetches deduction under section 80C of the Income Tax Act.

Nowadays most of us invest in equity mutual funds and tax saving mutual funds (technically known as equity linked saving schemes- ELSS). Tax saving mutual funds offer tax breaks under section 80C of The Income Tax Act for an investment amount up to Rs 1.5 lakh per year. These funds come with a lock in period of three years. If you have investment in tax saving mutual funds held for more than three years, you can sell them. Reinvest that money in a tax saving scheme and you are done. The investment is treated as a fresh investment and you get the much needed tax break. New investments in tax saving funds come with a lock in of three years.

For the equity mutual funds, if you hold on to an investment for more than one year, there is no tax on gains, say the extant rules. If you have some such investment, you can sell it and invest the proceeds into tax saving mutual funds.

This method does not change your asset allocation.

Have a fixed deposit? Make a tax saving bank fixed deposit

Most of us do have bank fixed deposits. These can be broken. A premature withdrawal will lead to lower interest than the committed at the time of making the fixed deposit. But still you get some money. Now invest the proceeds in a bank tax saving fixed deposits. These deposits come with five year lock in period and fetch the tax deduction under section 80C of the Income Tax Act, for an amount up to Rs 1.5 lakh.

This way you do not take unnecessary risks, nor your asset allocation changes, but you get the tax benefit.

These tricks may sound good. But they must be seen as a last minute resort. These ‘roll-over’ tax saving investments effectively lead to minimal incremental investments. Tax saving cannot be the sole reason to invest. You should ideally be saving more and investing more as your career progresses and you earn more. If you are facing a situation of cash-crunch, then it is time to get your acts together.

Please ensure that you will save and invest in the right avenues from April 1. It will not only bring tax saving but also ensure wealth creation and wealth preservation and ultimately achievement of your financial goals.