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Avoid last minute tax saving moves
Published On , 22 Mar 2016 By Times Of India
With just about a week left before the financial year ends, there are many taxpayers who have not yet made the requisite investments or bought financial products which can save them some extra money from their annual tax outgo. Ideally, the plan to save taxes should start at the start of the financial year, that is in April, but not everyone sticks to that regime. In turn the procrastination leads some people to either rush to invest in products which may not be suitable for their long term financial Goals or worse, not save enough tax even when they are eligible for the same.
PITFALLS OF LAST MINUTE INVESTING TO SAVE TAXES
In addition to settling for wrong investments, going for last-minute Tax Saving investments could also lead to other problems. Some of these hurried investments could also turn costly in the long run, financial planners and advisors say. For example, if someone buys an insurance product with a high premium outgo that is not in line with the risk profile of the buyer, h e / s h e may either be forced to continue to pay the same high premiums for several years or surrender the policy which could lead to some loss to him/her.
These last-minute Tax Saving investing may also stretch the family’s monthly budgets during the month when such investments are done. In turn this could result into some unwarranted cuts in other areas for the whole family.
OPTIONS LEFT TO SAVE TAXES
Individual taxpayers have a limit of investing Rs.1.5 lakh under Section 80C of the Income Tax Act to save on taxes. For most salaried taxpayer, a part of this limit is exhausted through their contributions towards Employee Provident Fund (EPF). For taxpayers who have bought a house on a loan and paying the EMI, the principal amount in the EMI is also included within the section 80C limit. Within these categories, the late comers can’t do much at this moment.
According to Ramesh Chand Maloo of Maloo Finance & Investment Services, for last moment tax planning Equity linked savings schemes (ELSS) floated by mutual fund houses, Public provident fund (PPF), 5 year Tax Saving fixed deposits, National Pension Scheme and unit linked insurance plans (ULIPs) by life insurance could be considered. “If y o u want to connect it (Tax Saving) with your long term financial Goals, then you can save through retirement funds. However, the best option is ELSS for three years as it has growth potential in the current market scenario,” Maloo, who runs his financial advisory business from Jaipur, said. “Outside of the section 80C limits, the other Tax Saving options are NPS and mediclaim policies which could also be used,” he said.
Among the Tax Saving options still available, a taxpayer could invest Rs.1.5 lakh in one shot in an ELSS or in a PPF account. While in ELSS there is a lock-in of three years, one can withdraw funds from PPF after five years, but not the full amount.
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