If you are the kind who likes doing things at the very last minute, you better hurry. The accounts department of your Company, must be knocking on your door, asking you to submit proof of investments to save taxes.
So, why is the accounts department asking you to submit income tax saving proofs? It goes way back to April 2017, or the start of the financial year. It is the duty of your employer to withhold taxes (cut taxes from your salary), and pay it to the Government on your behalf. The accounts department has been computing taxes on your salary, based on the proposed investment declaration, which you had submitted at the beginning of the financial year.
Now, it's time for you to furnish actual documentary evidence, showing the tax saving investments you have made. After you submit investment proofs, the tax department computes taxes, based on your actual investments.
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Tax planning is always done at the beginning of the financial year, not at the end. But now it's too late. You have to hunt for investments under Section 80C to save taxes.
You are eligible for tax deductions under Section 80C, up to a maximum of Rs 1.5 Lakhs a year, if you invest in certain financial instruments. The premiums you pay for life insurance plans, the EMI (Principal) on the home loan, investments made in PPF, NSC, ELSS, Senior Citizen Savings Scheme, Tax Saver FD, Sukanya Samriddhi Yojana and some other investments are eligible for tax benefits under Section 80C.
Have you made tax saving investments under Section 80C?
SEE ALSO: 7 Tax Saving Options Beyond Section 80C
Before thinking about fresh investments in tax saving financial instruments under Section 80C, take a look at other tax saving options like premiums paid for health insurance plans (Section 80D), interest deduction on education loan (Section 80E), Interest deduction on home loan (Section 24) and so on.
Now, look at your existing commitments under Section 80C, like the premium you pay on your endowment life insurance plan, or your contribution towards the EPF and so on. You now have an idea of the total existing commitments under Section 80C, Section 80D, Section 80E, Section 24 and so on. From your gross total income, you now use the tax deductions to get an idea of your taxable income.
After doing these calculations if you are still above the tax exemption limit of Rs 2.5 Lakhs, look at further tax saving. If you have not exhausted the Section 80C limit of Rs 1.5 Lakhs a year, look for the right tax saving investments under Section 80C.
SEE ALSO: What All Comes Under 80C?
You can choose fixed income investments like tax saver FD, PPF, NSC or SCSS, if you are risk-averse. If you like to take risk in investments, you may consider ELSS, NPS or even ULIPs which give market linked returns, to get tax benefits under Section 80C.
Look at the tenure of the investment. PPF has a maturity period of 15 years. ELSS has a lock-in of 3 years and Tax saver FD has a maturity of 5 years. Choose investment tenure based on financial goals.
An investment in PPF or ELSS enjoys the EEE benefit. The investments you make are tax free up to Rs 1.5 Lakhs a year. The returns and the money you get at withdrawal are tax free. Take a look at the Senior Citizen Savings Scheme. It gives a high interest, but the interest you earn is taxed.
The Finance Minister Arun Jaitley may hike the tax deduction under Section 80C, from Rs 1.5 Lakhs a year to Rs 2 Lakhs a year, when he presents Union Budget 2018-19. The deduction limit under Section 80C has not changed since Finance Minister Arun Jaitley's first Budget in July 2014-15.
It's time to get your act together. Invest in financial instruments which enjoy the Section 80C benefit. Tax evasion is a crime, but tax avoidance is not. Be Wise, Get Rich.
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