We are in last quarter of financial year. Very soon you will be asked by your company people to submit your tax saving investments proof. Or if you are self-employed your tax person will start poking you on your books of accounts and other tax related things.
It’s not only investments that make you save tax. There are few listed expenses which come under section 80C and other sections which will help you save considerable tax payments. There are also some other arrangements which help you reduce on tax outgo, but for that last quarter of financial year may be too late to act on, still you can start working on the ideas and derive the benefit in next financial year.
I have prepared a detailed checklist to help you understand if the savings you have done to save taxes are enough and what extra (if at all) you could do to further enhance your tax saving. Here I may not cover all the Income tax sections, but various tax planning ideas, so you could take maximum benefit.
Though I always believe that whatever investments you make should be made keeping in mind your overall Investment/Financial Plan, so your tax saving should also help in achieving your goals. So please consider this checklist as a supporting document of your Investment Plan.
Checklist for tax saving in FY 2015-16
1. Tax saving discussion always starts with Section 80C. You can save Maximum of Rs 1.50 lakh in the specified investment products. Your EPF contribution, your children school fees, your Housing loan principal payment, your life insurance policy premiums are part of it.
If there’s still some amount left to be invested, you may invest into Public Provident fund, ELSS Mutual fund. There are other investments also like NSC, 5 years bank FD which can be invested in for section 80C savings but since these generate taxable returns, so it’s advisable to Invest only if it fits into your investment plan.
You may also look at Sukanya Samriddhi account, which was announced last year under Beti Padhao Beti bachao yojana. It also generates tax free interest for the investors
Your Investment plan will guide you how much insurance cover you should have and also on your asset allocation so you can have appropriate investments in PPF/EPF /ELSS.
2. Invest in New pension scheme (NPS) account and save taxes u/s 80CCD (1B). This section was introduced in Budget 2015. Now you can invest Rs 50000 in NPS and claim tax benefit over and above section 80C limit of Rs 1.50 lakh. ( Also Read : NPS Withdrawal Rules).
You may also combine section 80C and 80CCD (1B) and invest complete Rs 2 lakh into NPS and claim tax benefit.
3. Have Health insurance cover for self and parents, and claim tax benefit u/s 80D. You can claim tax benefit up to Rs 25000 of premium paid on policy for self, spouse and Children, and up to Rs 30000 premium on policy in the name of Senior citizen parents. So in total you can claim tax deduction of upto Rs 55000/- in section 80D.
If you already have health cover you may think of enhancing the cover if your feel required. ( Read : How much health cover should you buy).You may also get your and your family’s preventive health checkup done and claim benefit upto Rs 5000/-. This is a part of maximum limit of section 80D.
Personal health cover is must even if you are covered by your employer.
4. If you are spending on the medical treatment of disabled dependent family member (Spouse, Child or parent), then as per section 80DD you can claim upto Rs 1 lakh as tax deduction for person with disability between 40-80%, and upto Rs 1.25 lakh for person above 80% disability.
If tax payer himself is disabled then the same tax deductions can be claimed u/s 80U.If the treatment is for specified chronic illnesses then further Rs 40000 (for < 65years) , Rs 60000 ( for >65 years) , and Rs 80000 ( for >80 years) can be claimed under section 80DDB.
5. Postpone the taxable withdrawals. If you are planning to withdraw out of your EPF or Surrender your taxable Insurance policy or redeeming your Non equity mutual funds (before 3 years of Investment), then better to postpone it till April, and if possible scatter the withdrawal in different financial years to manage the taxes in a better way.
Taxable Insurance policies are those where Insurance cover is less than 5 times of premium, if bought before April 2012 and less than 10 times of premium, if bought after April 2012. Even pension plans are fully taxable. The complete Maturity/Surrender proceeds will be added in your total income and will be taxed as per Slabs. ( Read: tax implications when you discontinue your life insurance policy).
In Budget 2015 the taxation on Non equity Mutual funds has changed. After 10 July 2015, the minimum holding period in non equity mutual funds has been changed from 1 year to 3 years. So withdrawal before 3 years would attract Short term capital gain tax. Means the gain will increase your total taxable income.
An EPF withdrawal before 5 years of account continuation is completely taxable. ( Read: EPF withdrawal Rules)
6. If you have sold any Real estate ( Commercial or Residential) recently and planning to buy some other property in near term then till the purchase, put the total sale amount into a Capital gains account scheme. Or if there’s no plan to get into any other Residential property then buy capital gain bonds to save capital gain taxes.
- Your Interest payment on your education loan (if any) will also get you tax deduction u/s 80E. Whatever interest you pay in the financial year will be deducted from your total income. ( Read : factors to consider before taking education loan)
- Even your Housing loan Interest payment will get you considerable tax saving u/s 24b of Income tax act. Upto Rs 2 lakh for self-occupied property and full interest payment for let out property can be claimed as tax deduction. ( Read: All you want to know about Housing loan tax benefits)
- If you are socially responsible person and keep on making some donations for philanthropic activities, then you may claim tax benefit on donation amount u/s 80G. It’s just you have to be sure that the organization you are donating, is registered with Income tax authorities and you should be having proper receipt of payment. Tax benefit can be either 50% or 100% of donation amount.
10. Taking maximum benefit by creating tax files and spreading the taxable income among the family members will also help you in considerable tax saving. But doing this in January may not be of much benefit to you. But following this approach will help you in long term.
Proper tax planning will help in significant tax saving and when it is supported by Good Investment plan then your overall financial life will get benefited.
Tax saving investments comprises of major allocation for many of us. The above mentioned 10 point checklist for tax saving in FY 2015-16, gives you a fair and basic idea of what provisions you can make use of so save taxes.