As the end of the financial year approaches, those using the old tax regime need to complete their savings investments and get the necessary deductions.
This time around, there are also a few holidays in the last week of March and this requires extra care to ensure that the process is completed before the due date. Taxpayers should not wait for the final day of the year to complete the investments but work on this as soon as possible.
Here are some ways and steps they can take on this matter.
Calculate The Shortfall Properly
The first thing to determine is whether the investment limit of Rs 1.5 lakh that is allowed as a deduction under Section 80C of the Income Tax Act is being fully utilised.
There are a few investments that might already be contributing to this deduction, and this needs to be taken into consideration to calculate the amount of the shortfall.
For example, for those who are salaried, there is the contribution to the Employees Provident Fund that is already counted under Section 80C. Similarly, for those who have existing life insurance policies, the premium paid would also be included.
The calculation has to be made for the amount that remains outstanding. This will ensure that there is no extra amount that is locked into tax savings instruments because there are lots of cases where individuals end up putting in more than what is required into these instruments.
Restrict Future Liabilities
The last-minute rush to finish tax-saving investments often leads to a sense of urgency, which further develops into a lack of proper and detailed thought behind the investments.
This happens because the focus of the individual is on completing the investment and not anything else. This is why individuals often end up buying life insurance policies, as they seem easy to do. However, there is a need to look at the long-term picture and not just immediate ease and convenience.
Products like insurance policies have a recurring premium payment for multiple years, so what the individual is doing here is putting a burden on their finances for the future too, which needs to be avoided.
Avoid Full Equity Exposure In One Shot
Individual taxpayers also need to factor in the risk element of their tax-saving investments. The best option on the equity front is equity-linked savings schemes. These funds offer exposure to equity for the investor, and they come with a three year lock-in. Making multiple investments in such funds throughout the year in installments is the best way to invest. However, some taxpayers might have a large amount remaining to invest to reach their Rs 1.5 lakh limit, but at the current juncture, they do not have the luxury of spreading out the investment. In such a situation, using only ELSS might raise the risk element, which can be reduced by choosing another option for a part of the investment.
Debt Choices
There can be a lot of choices on the debt front that can ensure that the Section 80C limit is completed for the financial year.
The small savings schemes offer higher rates of interest along with some tax benefits, so this can prove to be a beneficial area for making investments. The Public Provident Fund, Sukanya Samriddhi Scheme, and the Senior Citizens Savings Scheme are three of the best options that can be utilised by different categories of eligible investors.
These provide benefits on the tax front as well as help in achieving financial goals.
Use NPS For Extra Deduction
There is one option in the form of the National Pension Scheme, where the individual taxpayer gets an additional deduction of Rs 50,000 over and above the Rs 1.5 lakh deduction under Section 80C.
For those individuals who need to have a retirement product in their portfolio, this becomes an option that they can utilise and, at the same time, earn an extra deduction. The lock-in for the NPS in the Tier 1 account is longer because the amount here can be taken out only after the completion of 60 years, and at the same time, 40% of the amount has to be compulsorily converted into an annuity.
Arnav Pandya is the founder of Moneyeduschool.
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