5-minute tax planning for FY17

5-minute tax planning for FY17

Lack of familiarity with various sections and tax-saving investments need not be an excuse anymore. Here is a quick DIY guide

Every taxpayer knows that it is always better to start the process of tax planning in April, the beginning of the new financial year. Most taxpayers also know that a proper financial plan imparts discipline to their lives and helps them to earn better returns from tax-saving investments. However, many individuals, despite their best intentions, fail to launch their tax-saving investments in April. Most of them cite the lack of familiarity with various Income Tax Sections and investment options as the main reason for their failure to kick-start an investment programme on time. However, this need not be an excuse anymore. Here is a quick Do It Yourself tax planning guide for you. We believe it will help you finalise your tax-saving investments in less than five minutes.

Step 1
Buy an adequate life insurance cover if you have financial dependents. The insurance premium qualifies for a tax deduction of up to R1.5 lakh under Section 80C of the Income Tax Act. Always buy a term insurance plan.

Step 2
Buy a health insurance cover for you and family. The premium qualifies for a tax deduction of up to R25,000 (R30,000 if you are above 60) under Section 80D of the Income Tax Act.

Step 3
Find out how much is your Employee’s Provident Fund (EPF) or National Pension Scheme (NPS) contribution. Your EPF and NPS contributions qualify for a tax deduction under Section 80C and Section 80CCD(1) respectively.

Step 4
Find out how much more tax can you save under Section 80C. As you know, the maximum deduction available under Section 80C isR1.5 lakh. Find out how much you are already investing by adding your life insurance premium and EPF/NPS contribution. Then deduct the amount from R1.5 lakh. Eureka. Now you know much extra you need to invest to exhaust your tax deduction limit under Section 80C. By the way, you can clam an extra tax deduction ofR50,000 on your contribution to NPS under Section 80CCD(1B). In other words, you can save taxes of up to R2 lakh if you contribute to NPS. Remember, you can only claim a maximum tax deduction ofR2 lakh under Section 80C and Section 80CCD. So do not invest more than the required amount.

Step 5
Choosing the best tax-saving option is no sweat. Here is the easy way out. Do you like taking risk? If yes, pick Equity Linked Savings Schemes (ELSSs) or tax planning mutual fund schemes. These schemes have a lock-in period of three years and they offer tax-free returns. If you are totally risk averse, you can opt for 5-year tax saving bank fixed deposit. Remember, the interest is not tax free. Risk-averse taxpayers can also start investing regularly in Public Provident Fund (PPF) to invest for long-term financial goals like retirement, child’s education, etc. PPF has a lock-in period of 15 years and interest and principal is tax free on maturity