The title of this blog says tax saving season because most people usually wake up and scurry around in the March quarter to invest for submission of tax proofs to their accounts department at work. The term tax planning has become a paradox because there is no proper investment planning from the beginning of a financial year which in due process takes care of tax saving. The end result is investments done in a haphazard manner in products unsuitable to the investor’s financial situation and profile. In a rush to invest for tax saving, investors do not even make optimal use of the tax benefits available. Here are a few things in mind which will help you to avoid mistakes as part of last minute tax saving effort:
Benefits beyond Sec-80C: If you are salaried, chances are that you might be highly focussed on Sec-80C and may have overseen certain allowances that may be allowed as exemption by your employer (fully or partially) from your salary. These are easy to claim keeping in mind the limited time left till March and do not require any new spending or investment.
If you are one of those who frequently go on short trips with family within India and have a record of the travel receipts (bus, train, air fare) then you can claim leave travel allowance including your spouse and two children under section 10 (5).
Besides the house rent, transport allowances and medical reimbursement which are commonly claimed up to certain limits, you can also claim child education allowance up to a maximum limit of Rs.1,200 p.a. for 2 children.
Further, the maximum deduction of Rs.25,000 under S/80 D on payment of health insurance premium also includes any expenses incurred on preventive health check-up. If the premium paid by you is less than Rs.25,000 and if you or your family (including parents) have undergone a preventive health check-up during the year, you can make use of the balance benefit up to a maximum limit of Rs.5,000 under section 80D.
If you are associated with any NGO and been making regular donations, you can claim the full amount during the year under section 80G.
If you have booked short term capital loss from sale of any financial asset during the year, you can declare it and set it off against any income at the time of filing returns.
Some companies allow reimbursements on periodicals, magazines and mobile bill subject to certain limits. These would not be considered as part of your taxable income. Check with your employer about these benefits and ensure you diligently submit all the bills and avail the benefits without any extra tax burden.
Do the math: Many people towards the end of the year are clueless about how much tax has been deducted by their employer and how much additional tax they need to pay. This is particularly after a performance appraisal and any bonus received during the financial year. They assimilate all the detailed tax information at the time of filing returns. Many do not even realise they have not fully availed deduction of Rs.1.5 lakh under S/80 C and other tax benefits. It is important to do the math first. Calculate your gross income (income from salary, other sources and capital gains) deductions you can avail, advance tax already deducted and TDS and then arrive at your taxable income. This will provide you a clear idea about the scope of how much tax you can save and how much tax liability you will have to cough up in the March quarter.
Check o/s tax liability if switched jobs in a financial year: If you have switched jobs in a financial year, you need to keep an eye on your taxes. Your employer calculates your TDS on the basis of your annual salary. Your current employer is likely to deduct less tax assuming total income of the year from only the current job if you have not or delayed in providing the salary slips from previous employer. So, you need to consolidate your income from both the employers and check how much advance tax is deducted and how much needs to be paid in the March quarter. If you fail to pay the stipulated advance tax before March, you will have to pay 1 per cent monthly interest till you clear your dues at the time of filing returns.
Invest in sync with long term goals: Most investment options available under 80C are long term. Understand that you will need to commit your money which will be locked in for a long term – 5-10 years at least. So, do not invest in a random manner just to save tax. Invest keeping in mind your long term financial goals like retirement, child education, etc. Depending upon your goal horizon, you can invest and also save tax in the due process.
To conclude, spare some time to do the due-diligence first on tax calculations and then explore the benefits. You can also consult a competent chartered accountant who can guide you in detail on saving tax. Do not rush into buying any insurance policies from agents if you have adequate life cover. The agents including bank relationship managers have sales targets to meet on insurance and other products for the March quarter. This is the time when they meet more than half of their targets as they cleverly trick people into buying a financial product in the garb of saving tax. So, avoid these agents. Best still, do not visit your bank till March😊, you are better off doing the transactions from the confines of your home.