Plan Your Finances, Not Your Taxes
It’s almost the end of one more financial year – that time of the year when a large percentage of working population in India is in a rush to invest in tax saving instruments. Money to be invested, then the investments to be declared to avail of tax benefits – there’s a lot of work to be done. And too little time to do it in.
Don't plan your taxes, plan your finances
Money saved is money earned, as the saying goes. What’s left unsaid is the money has to be saved on time. And end of the year is definitely not the right time to do hurried investments. The beginning of the financial year is when you should start your investment journey for the year. Taking stock of your age, career stage and financial goals, you need to plan and invest. A mix of high-risk and low-risk investments, coupled with instruments to save the maximum tax as per your bracket, is an ideal scenario. That way you are not just planning to save taxes, you are planning to multiply your net worth. However, if you have deferred the entire process, or even the part of it that deals with tax savings, it’s still not too late. Just about 2 months are left for you to plan your tax investments for the year so let’s explore the low-average risk instruments available for you to immediately invest in. Since there has been enough said about section 80C, let’s look beyond it.
There are a lot of low-risk instruments beyond 80C that can give you good returns and also save tax. There are also a lot of other items we spend on that are eligible for tax deductions. The table below details all such options:
Section | Description | Max Deduction (in INR) | Risk |
24B | Interest on home loan for self-occupied houses where loan is taken after 1st Apr’99 | 2 Lakhs | None |
Interest on home loan for homes given on rental | 2 Lakhs; Extra losses can be carried forward | None | |
80GG | Rent paid on accommodation | 60,000 a year or 25% of total income or Excess of rent paid on 10% of total income | None |
80E | Interest on education loans for full-time higher studies in India or overseas | No upper limit | None |
80D | Health insurance premium for self and dependents (spouse, children, parents) | 25,000 per person, 50,000 per senior citizen | None |
80DD | Medical expenses of disabled dependents | 75,000 | None |
80DDB | Medical expenses for specific critical illnesses | 40,000, 1 lakh for senior citizens | None |
80U | Disabled persons | 75,000 - 1.25 lakh | None |
80G | Donation or charity to specific institutions | 50-100% of donation amount, upto a max of Rs 10,000 | None |
80GGC | Donation to a political party | No limit | None |
80TTA | Interest earned on savings account | 10,000 | Low |
80TTB | Interest on savings account + FD | 50,000 | Low |
80CCD | National Pension System | 50,000 | Low |
If you go through this table carefully, you will realise you can make a few investments immediately. You could buy a health insurance right away. You could also invest in NPS and put your money away in FDs immediately. If you would like to give money to charities or your preferred political party while at the same time availing of tax exemptions, choose your beneficiary based on the exemptions available.
Any expenses you have incurred through the year on medical expenses of either disabled dependents or critical illnesses specified under Section 80DDB can be claimed for tax exemptions. And if you have one of the 7 types of disability defined by the government of India, you can claim tax exemptions from Rs 75,000 - Rs 1.25 lakh based on the severity of the disability.
Plan better next year
Once you have finished your tax calculations and investments for this year, do take some time out to plan for next year. A few points you need to consider:
a.Relook at your current financial situation and define your personal financial goal – short term (1 year) and long term (5-10 years). The short-term goal should feed into the long-term goal and help you achieve it.
b.Start planning your finances for the next year so you can meet your short-term goals. Budget and prioritize your expenditure. Include medical, education and leisure expenses.
c.Start planning for the future of your loved ones – be it your parents, spouse or children.
d.Buy insurance – health, life, term – based on your family status and your goals.
e.Start paying off your loans as much as you can, especially loans that do not help you save tax.
Here’s hoping next February is less rushed for your financial planner than this year!!!
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