It’s that time of the year when we get knocked around by accounts department for proof of tax-saving investments in eligible instruments under Section 80C, Section 80D, etc. It’s also usual for people to postpone the matter of completing the necessary investments till the end.
When the accounts department comes down heavily with the deadlines, there is usually the scramble to find instruments to invest in so that one can take full advantage of available sections under income tax act. It is here when people make mistakes. In this last-minute scramble to meet the deadline, investors get caught in the web of wrong products which may not make much sense for them, overall.
1) Is investment necessary for tax savings?
There are investments like EPF contributions & insurance premium that one is paying, which help in savings taxes under Sec 80C. Also, one may be paying off home loans. The principal portion of the EMI is counted under Sec 80C. The basic tuition fees paid for up to two children are also counted in Sec 80C. So, in many cases, further investments may not be necessary to complete Sec 80C deductions.
Some also have medical insurance policies from the past for themselves and their parents - both of which come under Section 80D. Some people pay a certain additional premium for enhanced cover for themselves or their parents, under the group medical policy given by their employer.
2) Mistakes while investing for tax-saving
The products chosen should be such that they are a good fit in one’s portfolio. These products should be the right candidates to achieve or further the client’s goals. The mistake that we often encounter is the razor-like focus on just getting the investment proof without really looking at whether the product is inherently suitable for them.
3) Choosing the right products (even for tax savings)
The first step here is to look inward. The portfolio that one has and what is the kind of investment that one will have to make, needs to be properly examined. When looked at this way, we are keeping all options open. For some, it may be an equity oriented product that may make sense. The right product for them may be an ELSS fund.
For others, there may be a need to introduce fixed income products in the portfolio. There are several such options available - PPF, NSC, five-year bank FDs etc.
4) Why one can choose NPS?
NPS is a pension product available to any citizen below the age of 60, where they can contribute and start receiving an annuity from 60 or later. The money can be invested in equity, corporate & government funds. The equity allocation till age 50 can be as high as 75% of the overall assets, if one chooses.
The advantage in NPS is that one will save tax under Sec 80C up to an amount of Rs 1.5 lakhs. If that amount were already exhausted by other investments, Rs 50,000 can further be claimed under Sec 80 CCD (1b). This is an additional benefit available only under NPS.