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Last minute tax saving guide…

#1 Buy a Term Life Insurance

If you are not carrying life insurance, this is probably the time of the year you should buy one. After Covid everyone realised the importance of life insurance.

You have both the need and the urgency for it now.

But wait for a second –  don’t fall in the trap of buying ULIPS/endowment plan etc.

These financial products are the best fit for the people who have their life risk sufficiently covered and are looking for investment options while saving some taxes.

For a middle-class individual, term insurance is the cheapest and the best instrument to cover the risk.

Max tax exemption available:  Rs. 1,50,000 under sec 80C investments.

#2 Buy a Health insurance

If you have been delaying your decision to buy health insurance, February & March is the months when you shouldn’t wait any longer.

Medical costs are increasing day by day. Specially after COVID

An Unexpected medical emergency will put your finances/ Investments at too much risk.

So cover your risk of a medical emergency, at the same time enjoy the tax benefits.

Max tax exemption available:  Rs. 25,000 for self/spouse/dependent children & additional Rs. 25,000 for parents aged less than 60 years. For parents above the age of 60 years, the additional amount is Rs.50,000. This is as per the section 80D of the income tax.

#3 Invest in PPF

Haven’t made even a single contribution to your PPF account in the current financial year?

Make a minimum contribution of at least Rs. 500 or your account will become inactive.

And if you are still short of reaching your 80C limit and have the funds available, put more than Rs. 500 in your PPF account.

Max tax exemption available: Rs. 1,50,000 under sec 80C investments.

#4 Start a SIP in ELSS

Equity Linked Savings Schemes are mutual fund investment schemes that invest a large percentage of their portfolio in equity. Furthermore, the fund has a mandatory lock-in period of 3 years which is the shortest amongst all the investment products.

That will ensure some tax saving for the current financial year as well as for the next year.

Max tax exemption available: Rs. 1,50,000 under sec 80C investments.

#5 Get a Health Checkup Done

Do you know that amounts up to Rs 5000 spent towards a preventive health checkup is exempted from income tax.

If your premium paid towards the health insurance is less than Rs. 25,000, you can take the benefit and get a health checkup done.

Personally, I would suggest a preventive health checkup to everyone at least once a year. That way, you can keep a basic check on your health and take corrective actions well within time.

And you can also save some tax as well.

And March is the time that most of the diagnostic labs run multiple discount offers.

Don’t let the opportunity go waste.

Max tax exemption available: Rs. 5,000 under sec 80D investments.

#6 Donations made to charitable institutions.

If you strongly feel for a cause, show your financial support towards it.

While your donation can help someone in need, it will also help you get a tax benefit under section 80 G. (Do ensure that you check this with the organization before you make a donation.)

All your contributions to this fund will be 100% tax exempted.

Max tax exemption available: Either 50% or 100% of the contribution, based on the organization.

 # 7 Sukanya Samridhi Yojana

SSY has become one of the most important tax saving schemes. It was launched in 2015 by the government of India as a part of the Beti Bachao  Beti Padhao campaign. It had a major impact on the general public. The scheme allows a fixed income investment through which the taxpayer can invest regular deposits and at the same time earn interest on it. Investing in Sukanya Samriddhi Yojana also qualifies as an eligible deduction under section 80C of the income tax act.

The scheme comes with a lock-in period of 21 years and will mature after the expiry of 21 years. A minimum deposit of Rs. 250 is required to be made per year for 15 years. Failure to pay the minimum amount in a year will lead to disconnection of the account. To re-activate the account, you need to pay a penalty of Rs. 50 along with the original Rs. 250 deposit.

Only girl children can claim the benefits of this scheme.

The girl child cannot be more than 10 years of age. A grace period of one year is provided which allows the parent to invest with 1 year of the girl child being 10 years of age.

The investor must submit age proof of the daughter.

#8 Tax Saving Fixed Deposit.

Fixed deposits are considered one of the safest tax savings schemes. It’s safer than equity investments in terms of risk and returns. The banks decide the interest rates and it depends on several factors. Below are some of the features of a tax-saving fixed deposit:

Investment in tax saver fixed deposit eligible for deduction under section 80C while calculating the taxable income.

A minimum lock-in period of 5 years

The Senior citizens can get a higher interest rate on investment

In the case of a joint account, the primary holder can avail the benefit of tax deduction while calculating the taxable income

Tax saver fixed deposits do not allow any premature withdrawal. However, after the expiry of the 5 year lock-in period, investors get access to premature withdrawal. The terms and conditions for premature withdrawal vary from bank to bank.

# 9 National Pension Scheme ( NPS )

NPS or National Pension Scheme has become a popular income tax saving investment product. It is a tax saving option that is available to both government and private employees. It enables the depositor to build a corpus for their retirement along with a regular monthly income. The amount invested by the depositor is invested in several schemes including the equity markets.

There are two types of NPS accounts, Tier-1 & Tier-2. A tier-1 account has a lock-in period until the subscriber reaches the age of 60 years. The contributions made by the subscriber to tier-1 are tax-deductible under section 80CCD(1) and 80CCD(1B). Tier-2 accounts are voluntary in nature which allows the subscriber to withdraw the money when they like. However, contributions under tier-2 accounts are not eligible for a tax deduction.

As per the provision of section 80CCD, an individual can claim a deduction up to Rs. 1.5 lakh by investing in NPS. Additionally, a new sub-section 1B was also introduced,

which offered an additional deduction of up to Rs. 50,000/-for contributions made by individual taxpayers towards the NPS.

Conclusion

While the last minute tax saving is not the best option, it’s still better than not saving at all.

We are at the beginning of February and you have still 60 days at your disposal.

Don’t delay the process any further. You are always prone to making judgement errors when the time to analyse is scarce.

If you are used to acting at the last minute, this is the time when you should get active and start moving things.

Happy tax saving.

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