The approach to tax planning has to be holistic; it cannot be treated as once-in-a-year ritual that has to be casually looked at, at the end of the financial year, writes DEEPALI SEN.
Last quarter of every financial year is that time of the year when most of us are involved in hectic activities around choosing and deciding upon, from the common choices made available by the Government of India. Now we only have time until March 31, 2015 for this financial year. As per the Finance Act (No.2), 2014, the investment limit under Section 80 C of Income Tax Act, 1961 has been increase to Rs.1.5 lacs.
Since there are various options one can choose from, the key parameters to weigh these choices are on the investment trinity of liquidity, returns and risk. Furthermore, what may work for one investor may not work for the other one. It is more like using different strategies for different pitches.The most common choices available at hand are:
To wrap up the debate of PPF Vs NSC; the latter has better pre-tax performance due to current returns (8.8% of NSC IX over 8.7% of PPF) and the fact that the same is compounded half-yearly over PPF’s annual compounding; but the post-tax implications nullify this benefit. In addition, we know that NSC scores better on liquidity or lock-in.
While the returns of NPS are not fixed, the fact that it’s linked to the markets and the expenses are low, the probability of making decent returns (upwards of inflation) goes up. However, its EET nature makes it relatively unattractive along with the reality that the investments have to be held until60
Tax saving is more than just investments and goes beyond Section 80C. If you have donated to a charity that offers a tax deduction, avail of it. If you are paying premium on a medical insurance policy for yourself and dependents, be sure to claim the deduction.In addition, if you are servicing a home loan or an education loan, you are eligible for income tax deductions. Under Section 80C, you can even show the expenses of your child’s education to avail of a deduction.
Fundamentally, the approach to tax planning has to be holistic; it cannot be treated as once-in-a-year ritual that has to be casually looked at, at the end of the financial year. The three key pillars of investing, liquidity, returns and risk have to be at the core, while deciding; saving of tax is a largely peripheral but cannot be ignored either. It’s important to ensure that the tax saving investments (too) help your total portfolio returns tide over the inflation mark.
(The writer is a certified financial planner and author of ‘Why greed is great’)
