Tax saving tips

Tax-saving investments are a basic part of every individual’s annual financial plan. There is a lot of choice that is available when it comes to the tax-saving investments, and these have to be considered while making a final decision. Here are some tips that will help you in this regard.

Make the best use of options present

There is a wide range of options that are present when it comes to the tax-saving field. In case of completion of the investment limit of Rs 1 lakh under Section 80C, you can invest into areas like Public Provident Fund, National Savings Certificates, Equity Linked Savings Schemes, Insurance premium and so on. Ensure that the right mixture of these options is chosen for the purpose of completing your tax-saving investment. There is no need to restrict your investments to just one or two areas, but what is important is to select the most suitable option.

Select your own mixture

There is no one best option or even a right mixture that is present among the tax-saving investments. What is right instrument for you might not be right for someone else because the needs of you two might be completely different. For example, if you are a single male of 26 years and are salaried then your Section 80C investment might consist of equity-linked savings schemes of Rs 70,000 plus Employees Provident Fund for the remaining Rs 30,000. On the other hand, if you are 37 years old with a family and are self-employed then the mix could look like – Rs 25,000 for insurance, Rs 40,000 for equity-linked savings scheme and Rs 35,000 in Public Provident Fund. This is just an example but it shows that you need to make your own selection of options, depending upon your position.

Complete the maximum limit

There is a need for you to ensure that the maximum benefit under the law is availed by using the limit. For example, the maximum limit under Section 80C is Rs 1 lakh while there is an additional limit for medical insurance premium up to Rs 15,000, so both these benefits can be taken. Also, if you require a lesser deduction because of lower income then you should use up only that particular level required.

Use different asset classes

The tax-saving investments have to be done every year, thus it becomes a repetitive process. The good thing about the benefit under Section 80C is that there is a choice of a wide range of asset classes that you can choose from. This includes debt and equity while there are also balanced options present. Selecting different asset classes over a period of time can ensure that the portfolio is balanced and risk is not concentrated in a single area.

Start early in the year

One of the most common mistakes that are witnessed in the tax-saving process is that a lot of the work is left right till the end of the year. This results in a situation where you find yourself under both time as well as financial pressure as the end of the year approaches. This situation can be avoided by starting off the entire tax-saving process early at the beginning of the financial year.

Be regular in your payments

Another point that has to be maintained for smooth completion of the entire tax-saving investments process is that you have to be regular in the investment. Since the amount involved under Section 80C is Rs 1 lakh it is not possible for everyone to complete the investment requirement at one go. This requires breaking up of the investments into various parts. Also, by setting a regular schedule it becomes easier to complete the entire investment.

Do not bunch up payments

One position that often leads to a lot of problems is when a bunch of payments for the tax-saving investments come at a specific point of time. This happens because there is a burst of activity around a certain time. However, it is better to avoid such a situation by ensuring that the selection of investments and even payments are spread over a period and this will reduce the burden on you too.

Consider changing your investment choice

If you have selected a particular mix of instruments for your tax savings this particular year then it is not necessary that you should stick to the same every year. There is also no need to have the same mix for the amounts invested. Since your situation as well as financial position is changing there will be a need to make changes in your investments and this will have to be done in order to ensure that your choices remain relevant to the changing situation.

Consider future impact of a decision today

Most people undertake a particular investment and then forget about it even though it carries a future impact. This can be in the form of payments in the future or even return of some investment amount or even a lock-in of the amount invested. For example, an insurance policy chosen this year will involve a premium payment that will come up in the next several years too and if this is not factored in then there could be a payment problem at that point of time. This has to be considered before any decision is made.

Look at earnings also

Since the aim of the tax-saving investments is to save tax for you, the other objective of earnings for the instrument is often pushed into the background. This has to be avoided because it is necessary for you to consider the overall position of the instrument in terms of return as well as other benefits while making a choice. This is the reason why the earnings also have to be considered as a factor in making a decision between various options that are present in the market. This will ensure a well-rounded choice for your investments.