If you are among those who rush to buy tax-saving products at random just before the close of the financial year without any long-term planning, you may be hurting your long-term financial health. Tax planning should not be done in isolation. You must align the larger investment plan with tax-saving instruments to maximise returns. Though this should be done at the start of the financial year, it is still not too late.
Tax planning is all about Section 80C of the Income-tax Act for most of us, which includes investment tools like Public Provident Fund, National Savings Certificates, tax planning mutual fund schemes, and so on. But what taxpayers don't account for is that the employees' contribution to Provident Fund, children's school tuition fees and the principal repayment of housing loans also qualify for tax deduction under Section 80C, which is capped at R1 lakh. If you invest anything over and above R1 lakh in ELSS, life insurance, PPF or NSC, it does not give you any extra tax benefit. It is just that your money gets locked in for a certain period, which can range from three to 15 years in the above-mentioned products. The philosophy of healthy investment has two essential elements: Returns and associated tax savings.
Contrary to popular belief, Section 80C is not the only section that salaried people can exploit to save maximum tax. You have to understand the nature of each tax break; and depending on the shortfall, the remaining amount should be invested in tax-saving instruments.
There are a host of tax-saving options available to individuals, inter-alia, including the following:
* You can claim deduction up to R30,000 on interest paid on a loan taken for renovation of an existing property;
* Individuals with a gross total income of up to R10 lakh can invest up to R50,000 and claim 50% deduction on the amount invested under Section 80CCG under the newly introduced Rajiv Gandhi Equity Scheme.
* Similarly, you can claim deduction of up to R5,000 on expenses incurred on health check-ups, subject to the overall limit in Section 80D, under which deduction for medical insurance is available from R15,000 to R35,000 subject to conditions.
* Deduction up to R10,000 is available for interest income on deposits in savings account (not time deposits) with a bank under Section 80TTA.
* Donation made to certain funds or charitable institutions are eligible for deduction up to 100% or 50% as provided under Section 80G.
* Finally, under Section 24 the amount of interest you pay on home loan can also be claimed as deduction subject to the limit of R1.5 lakh. This is outside the deduction available for principal repayment on the loan available under Section 80C.
Remember, these are general avenues available for tax planning. That apart, benefit of certain specific tax deductions may be claimed on a case-to- case basis.
The writer is managing partner, Nangia & Co. Inputs
from Neha Malhotra