Here’s How Late Starters Can Maximise their Tax Savings

“Failure to Plan Is Planning to Fail”.

This phrase applies to many aspects of life, including taxes. Tax planning is an integral part of a holistic financial plan. In spite of this, it is an aspect that is commonly ignored. Individuals run helter-skelter only at the end of the financial year when their employers ask for Investment details.

While a smarter approach is to start planning in the early quarters of the financial year, the good news is it’s never too late to start with the tax planning exercise. With some prudent investments, focus and discipline, even late starters can maximize their tax savings.

Below are four investments to get you started. If you haven’t invested in these tax saving options, now may be the time to do so.

Public Provident Fund (PPF)

Public Provident Fund, commonly known as PPF is the most common tax saving scheme with the features of investment and savings. It intends to bring out the best of small-sized savings and is most suitable for those who want to create an adequate corpus for their retirement.

• PPF offers 8 percent interest per annum (effect from 1^st January 2019) – this rate is defined by the Finance Ministry and is updated from time to time
• It has a lock-in period of 15 years
• The minimum investment allowed per annum is Rs. 500 and the maximum is Rs. 1.5 lakhs
• Investment up to Rs 1.5 lakhs is eligible for tax deduction under Section 80C

So, if you are looking for tax exemption on the amount that you invest, non-taxable interest and a tax-free maturity amount, this is the investment for you.

Equity-Linked Savings Scheme (ELSS)

ELSS, a diversified equity mutual fund scheme, comes with two astonishing features – first, the investment amount qualifies for tax benefit under Section 80C up to a limit of Rs 1.5 lakh, and secondly, it has the lowest lock-in period of 3 years amongst other tax saving investments. Thus, investing in ELSS not only helps one save for a long-term goal but also helps in tax saving. Here are some unique features of ELSS:

• Investment in ELSS starts from Rs 500 and in multiples of Rs. 500
• SIP mode of investment helps instil a disciplined approach towards financial planning
• It helps to harness the power of two robust investment strategies – rupee cost averaging and power of compounding

However, gains from ELSS schemes are not tax-free – long-term gains made on ELSS mutual funds are taxed.

Unit Linked Insurance Plan (ULIP)

ULIP is a hybrid product, a blend of investment and insurance. Meaning, it not only provides you with life cover but also helps channel your money to various market-linked funds for meeting long-term goals.

The most important ULIP feature is its E-E-E status, which makes investors eligible for tax deduction during all three phases – investment, earnings and maturity. The premiums paid towards ULIPs can be claimed as deductions up to Rs. 1.5 lakhs under Section 80C. Additionally, the interest gained and the maturity amount is entirely tax-free under Section 10(10D).

• ULIPs offer the option to invest in a range of funds, with a mix of equity and debt to fulfil your long-term financial goals
• The lock-in period in ULIPs is 5 years, and there is no limit on maximum contribution
• You can switch between funds as per your risk appetite and changing life goals
• ULIPs allow you to increase the amount of investment, all thanks to the ‘Top-up Facility’ and you can avail tax benefits on the top-ups too.

Term Of Insurance

Term of Insurance can be regarded as a default tax saving option used by investors. It is covered under Section 80C; therefore, it offers tax deduction up to Rs. 1.5 lakhs per annum. Most importantly, it acts as a financial safety net for your loved ones in your absence.

• Term insurance is an affordable option that provides a large cover at a relatively smaller premium amount
• A non-smoker 30-year-old male can get Rs. 1 crore term plan for premiums as low as Rs.670/month (for a policy tenure of 30-years)
• Insurers like Future Generali offer the flexibility to receive payout as monthly income in addition to lump sum amount
• You can add riders like critical illness rider and accidental death benefit rider to make your term plan more comprehensive
• The premiums paid (up to Rs. 1.5 lakhs), as well as the death benefits (entire amount), are exempt from tax

Summing Up

The above tax saving options can help you in making investments under Section 80C. So, pick the investment option that best suits your goals and risk appetite. However, spend time learning and thinking about your situation to determine which is the best tax saving investment option for you. Act today, and you will thank yourself tomorrow.