There are great many promises we make ourselves in life! How many we actually end up fulfilling, is a question people seldom ask themselves! However, promises to oneself don’t usually stop! Usually this season comes to form so to say in January and lasts for about a month!
Now this ranting of mine warrants a question as to why talk of promises now? Well generally, the words, ‘promises’ and ‘New Year’ gel in quite nice – together! And hence the exercise of writing this blog post, now! Just when a new Financial Year is lurking right around the corner!
Come on, let’s be true to ourselves! How many of us have run helter-skelter in the usual months of Jan, Feb or March in the ‘quest’ of myriad documents for submission, to ensure deduction of correct TDS? Yes, the question is mostly posed to salary earners who typically wake up only when the HR sends a reminder mail for document submission for tax purpose; somewhere in January every year. Then begins the furry of collating random documents like loan & interest certificates, rent agreements and receipts, insurance premiums receipts, ELSS statements, PPF passbooks and what not!!! I have hardly seen people well prepared and ready for this event which happens every year!
See, there is a time for doing things. We shell out time for outings, entertainment, that occasional movie, that trip once a year and things alike! Hardly anybody is willing to give enough effort and time to manage their finances and resultantly their tax planning! Reason – finance is so boring, tiring and trifle as compared to other priorities! And besides, why waste time, now when you can do things at the last minute!
Investment and planning are always and invariably kept for the last! (which ideally should be the other way round, on which I keep on writing as a recurring theme of my blog!)
Well, let me tell you, that last-minute deposit to ELSS, that last-minute insurance policy taken, that last minute PPF/NPS deposit or that NSC bought at the last minute saves your tax for the year yes! But it could have been done in a better way for sure! Did you actually get a right deal this time?
Well! We are shortly approaching a new year i.e. a new financial year which begins on 1st April! Is it not a great idea to start something fresh and new this FY? Is it not a cool idea to take up this new financial resolution; if not a challenge, to ourselves? Let us discuss point by point, what an Individual tax payer can do for adequate tax planning right from day 1.
- Deposit to Public Provident Fund (PPF) – The PPF is a wonderful scheme covered under the INR 1.5 lakh deduction u/s 80C. This scheme currently gives out a tax-free interest of 7.1% (currently in 2023). The lock-in is 15 years and can be renewed for 5 years each thereafter. One can easily calculate at the beginning of the year, an estimate of PPF deposit needed to be done in the whole year. If money is readily available, it would be a great idea to deposit at least a significant amount of money in PPF right between 1st to 5th The catch in this, is that you get 7.1% interest on the amount deposited for the whole year. This is huge! (Pro Tip: PPF interest is calculated monthly for amount deposited before 5th of every month. i.e. amounts deposited after 5th do not get interest for that month.)
- Investment in National Pension Scheme (NPS) – Yet another scheme being promoted by the Government. Being market linked, this scheme offers better returns than most other tax saving instruments. The catch though, is that you generally cannot withdraw any money before the age of 60. Also, another way to park your money in NPS now is by way of SIP. NPS gives an option to create a virtual account for your PRAN where you can deposit money by way of standing instructions through NEFT with any bank you use. You can visit the site for details (or connect with me if needed). Employer contributions to NPS are exempt up to 10% of the basic salary. (Please reach out to your employer if they permit flexi salary options). Voluntary contributions are exempt up to 50,000 a year (over and above 1.5 lakhs limit under 80C)
- Voluntary contribution to EPF (VPF) – This option is another easy way to save taxes. Simply instruct your employer to contribute higher amount monthly to your existing EPF account. For e.g. an employer by default deducts 12% (of your basic salary) as EPF employee contribution. You can increase this amount. It will be deducted from your salary normally. (Please note there will be no change in the employer’s contribution, but your monthly in-hand salary will get reduced by that much amount.)
- Equity Linked Savings Scheme (ELSS) Mutual fund – Best way to beat inflation and at the same time save taxes on the amount deposited. Covered under the overall 80C limit, ELSS is generally known to give good returns. Instead of putting a lumpsum in March at the last minute, when the NAV may or may not be favourable; it is a great idea to start an SIP in your choice of ELSS, right in the month of April. This will bring in a regular discipline to your savings as well as tax planning!
- Purchase of National savings certificate/post office savings scheme – This investment avenue hardly requires any explanation. People can buy NSC from any nearest post office. NSC currently gives out a taxable interest rate of 6.80%.
- Insurance policies/Term Life Insurance – Generally majority people either have a traditional endowment insurance policy with reputed insurers. The newest (and most efficient) form of insurance is undoubtedly Term Life policies. I feel all salaried people should have adequate term life cover. If you are thinking of buying one, please do not hesitate and do it in April/May itself. This early cover secures your life and at the same time gives you a receipt very early in the Financial year, which you can easily submit when needed.
- Medical insurance policies – The Income Tax act gives additional income tax deductions for medical insurance premia paid for self, spouse and parents. Similar to above, it would be a great idea to renew existing policies timely. In case of new policies, earlier the better should be the motto! Receipts for medical premia come in handy for submissions.
- Tax Saver Fixed Deposit – Although not an inflation beating instrument in the current times, tax-saver FD is by and large the easiest way to cover your back within the overall 80C limit. It comes with a lock in period of 5 years. However, this should be used as a last resort, only if you are unable somehow to invest in multiple options discussed above.
- House rent allowance (HRA) – Given as a part of the overall salary structure by almost all employers, HRA needs you to submit rent agreements with your landlord as well as receipts for the monthly rent paid. It would be a good idea to keep a tab on and renew existing expiring agreements on time and ask your landlord for timely receipts as and when you pay your rent! Also, a good idea would be, to scan or take a photo and store it, then and there!
- Telephone/internet bills/fuel & driver allowance – If your employer has a flexi salary options, you can opt for submission of internet/telephone bills, drivers’ salary receipts, fuel & maintenance bills etc if covered under employer flexi salary basket help save tax. However, it is very important that a tax payer has all the proofs in good condition. As said before, it is a good habit and idea to take and store photos of all documents which would be needed at the end of the year for submission.
- Housing Loan and interest – All loan companies and banks offer interest certificates and repayment statements etc on their online portals. However, most borrowers do not have access to online bank portals or borrowers’ website. It would be a nice move to go visit the borrower and get yourself online access to statements. This would also go a long way for you to keep track of the exact loan position. Also, when time comes, you would be able to login online and take out statements that are needed.
The entire purpose of this post is basically two-fold:
- To make the reader aware of a few options
- And possibly to elicit enough interest to act now
Apart from this there are other avenues where deductions can be claimed – tuition fees for your child, donations made to specified avenues, educational loan interest etc.
I may or may not have covered each and every investment avenue available out there in the market. But my general idea behind writing this blog post is to make you aware that tax planning does not need to be a last-minute activity. It can be planned and prepared for, in advance. Doing things at the right time will give you peace of mind, clarity of your tax and amount to be invested at the beginning for the year instead of running behind it at the last minute. By doing this, you will be able to better plan for fund arrangements for loan repayments, policy due dates, NPS/PPF contributions. Also, the pitfall in last minute investments is that, at times you do not get enough time to invest in good return giving instruments and have to compromise on whatever is available and doable.
Investing correctly and at the right time, creating a calendar for tax saving events such as policy premium due dates, relying on standing instructions instead of manual contributions to NPS, scheduling SIPs instead of lumpsum investment in ELSS and small things like this, not only reduce your tax, but also help increase your rate of return on these investments that you make or plan to do.
So, folks! Let us take up this resolution for now and start making a difference to our own bad habits which we have nurtured from times eternal!
For any further queries and discussions on this topic, I am, as always, a message/mail/call away…
Stay invested, plan ahead and stay vigilant!
Until then!!
Shreyas Parchure
WisdomVane 
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