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Income Tax: Are you still waiting to finalise your tax-saving investments?

Adhil Shetty
Income Tax, tax saving investments, health insurance policy, Section 80D, EPF contributions, Public Provident Fund, ELSS scheme

It is January, and the current financial year is about to end. There are those who meticulously plan their taxes and buy tax-saving investment products through the year to avoid year-end financial stress. If you are reading this article, chances are you haven't started planning your taxes yet. But worry not. You could focus on these financial products to reduce your financial burden. However, do note that you will have to buy them all in three months, which may stress your finances a little bit.

Take stock of taxes due & saved

Before you start planning your taxes for the year, you need to know your tax dues for the year. So, take a look at your salary slips as well as income from various other sources (for example, returns on mutual funds or interest from bank). Your taxable income is your gross income minus the deductions you're eligible for-like the standard deduction of `40,000. You should also look at tax savings you have already done-like your EPF contributions that get deductions under Section 80C or deductions under HRA. If your taxable income for the year is `5 lakh or less, you need not pay any taxes. If it's over Rs 5 lakh, you can bring it below that limit by buying tax-saving investments. So let's look at your best last-minute tax-savers.

Protect health, earn deductions
This is the most essential tax-saver in your portfolio: the health insurance policy. The premiums you pay towards your health policy are eligible for deductions under Section 80D. If you're under the age of 60, you can claim a maximum deduction here up to Rs 25,000. If you're above 60, you can claim up to Rs 50,000. Furthermore, you can claim another Rs 25,000 or Rs 50,000 deduction for buying health insurance for dependent parents.

Insure your life

Life insurance is one many Indians prefer to save taxes. The premiums can get deductions under Section 80C. There are many forms of life insurance available: the traditional endowment plan, cashback policies, ULIPs, and term plans are just a few well-known varieties. It is better to buy a term cover with a sum assured sizeable enough to financially protect your family.

Debt investment options

If you have an EPF account with your employer, you could increase your voluntary contributions to it up to 100% of your basic salary and dearness allowance. Alternatively, you could open a Public Provident Fund with your bank or local post office and invest up to Rs 1.5 lakh in it per year. The EPF currently offers returns of 8.65% per annum while the PPF offers 7.9%.

Invest in ELSS

Equity-linked savings schemes (ELSS) are tax-saving mutual fund schemes with a lock-in of three years. Look for a fund with a good track record and commission rate (the expense ratio). ELSS schemes invest your money in the stock market and hence have the potential to generate higher returns, as your risks are higher too. You can invest in any ELSS scheme from the comfort of your couch. Just go online to the website of your preferred fund house, pick the ELSS scheme, and pay online. ELSS investments are a silver bullet solution to saving taxes while creating wealth.
Lastly, if buying these tax savers all at once is a problem, spread them over the next three months. But come the new financial year, plan your taxes from April so that you can go into the year-end with a relaxed frame of mind. Remember to consult an investment advisor when in doubt.

The writer is CEO,