It is always better to work towards your tax planning goal from the beginning of the financial year. Read on to know what you need to do if you haven’t planned so far.
With the financial year 2017-18 coming to an end, your tax saving plan should ideally be in place by now. Otherwise, a last-minute rush is prone to mistakes and one can miss out on exploring smart and effective tax saving ideas.
It is always better to work towards your tax planning goal from the beginning of the financial year and accomplish it step by step. In the last few months before the financial year ends, you must check the shortfalls and try to accomplish the tax plan.
You should organise documents such as rent slip and agreement, Life Insurance premium paid during the year, Health Insurance paid for self as well as family and parents, tuition fees paid during the year, all investments made during the year under section 80 (C) of the Income Tax Act and rest all the details that are a must for tax calculations. Next is to figure out how much tax you would need to pay as per the prevailing financial situation. If your tax liability is higher than your expectation, then it’s time to explore more ways to keep the tax amount at a lower level.
Let’s check out how you can reduce the tax liability before the financial year ends.
List Out Expenses That Can Save Tax
Those expenses that are eligible for deduction benefits can help you reduce tax liability. Home loan EMI can reduce the tax liability under Sec 24 (b) and Sec 80 (C). Interest paid on Education Loan can reduce the taxable income to that extent under Sec 80 (E). Expenses for treatment of certain disease such as dementia, Renal failure etc are allowed under Sec 80 (DDB). Health Insurance payment is allowed as deduction U/s 80 (D). Donations to charitable institutions are allowed as deduction U/s 80 G, subject to applicable rules. House rent is an important expense which could save you a substantial amount of tax. Companies normally allow HRA to keep your tax liability lower. You must claim tax benefits on such rent payments to reduce your obligation.
If you are a first-time home buyer and you have availed a home loan, then you can claim an additional tax benefit of up to Rs. 50,000 under Sec 80 EE subject to the condition that the loan amount is below Rs. 35 lakh and value of the property is below Rs. 50 lakh.
Invest To Save More Tax
There are different investment options under Sec 80 (C), which allow you to claim a tax deduction up to Rs. 1.5 lakh and reduce tax liability. PPF, ELSS, Tax saving FD, Sukanya Samridhi Yojna (SSY) etc are commonly used for claiming tax benefit under section 80 (C). Apart from the Sec 80 (C) deduction benefits, if you are looking to invest more than Rs 1.5 lakh, then investing in NPS allows you an additional tax deduction benefit of Rs. 50,000 U/s 80 CCD (b).
While investing to save tax, always keep your long-term financial goals in mind and try to invest accordingly. You should select the tax saving instruments on the basis of your return expectation, the risk associated with it, liquidity offered by the instrument and the lock-in period of such tax saving instrument.
Last Minute Rescue Plan
If you are still not able to keep your expected tax liability lower, then you need to think about an alternative strategy. Instead of making a fresh investment and increasing the taxable income in the next financial year, you should transfer the fund to your parents or in-laws who are below the taxable limit and invest money in their account. Income on such investment will be taxable in the receiver’s file (Parents/in-laws) and you can keep tax obligation lower in the next financial year.
You can consult a tax advisor to get your salary structure checked and find out ways to keep taxes lower. Find out with your employer if a change in your salary structure is possible to reduce the tax liability.
Sometimes people do not have sufficient amount available to invest and get the benefit of tax deductions. In such cases, they can borrow money from friends or relatives to invest or liquidate an old tax-free investment to arrange the fund for immediate relief.
During last-minute tax planning, people often forget to take advantage of adjusting the capital gain and loss to reduce the tax liability. Do check if you are eligible to adjust capital gain and loss on accrued during the year. Remember that a short-term capital loss can be adjusted with short and long-term capital gain, on the other hand, long term capital loss can be set-off only with long term capital gain. Always consult your tax advisor for the appropriate suggestion as per your need.