Here are some last minute tips to save on taxes

The March 31 deadline for filing income tax returns is just around the corner. It has been observed, over the years, that salaried taxpayers usually end up paying more taxes than they are required to, with the reasons varying from a lack of time or the lack of knowledge about tax rules or financial products to minimise liability.

To ensure you don't end up paying more than you're supposed to this year-end, we've a list of last minute investment tips.

However, before getting into that, it's important to note that it is highly impractical to make last minute investments in seven to ten days; healthy investments take much more time than that. Financial planning is the foundation of creating a sound investment portfolio and optimising tax savings. Financial goals can't be achieved without financial planning, and it comes coupled with the risk of paying more taxes.

With hardly any time left, what should you do?

Follow the basics:

At the last minute, it's advisable to stick to the basics. So don't invest in any financial instruments you don't understand. There are many so-called financial planners and advisors that mushroom in the last few days of filing returns; they are nothing but sales agents. Beware of them and stay away from products that may have you pay at regular intervals for long-term, say 15-20 years.

Optimise the limit of Rs. 1,50,000/- U/S 80C

The limit of investments you can make under Section 80C is Rs 1.5 lakh. Make sure you don't miss the opportunity to optimise this benefit -- whatever you invest will lower your tax liability and give you more money on hand.

For example, say Manoj has an income of Rs 8 lakh and he invests only half of the available Rs 1.5 lakh limit. He will end up paying additional tax of nearly Rs 15,000 (i.e. Rs 75,000 x 20% tax rate based on is income slab) as opposed to an individual who has the same income but made full investments under Section 80C.

Know all the options as available u/s 80C:

Most times, people only invest in insurance or public provident fund (PPF) and end up missing out on other avenues to save tax. Here a list of the other instruments you can invest in under Section 80C.

Investment related Options:

-- PF

-- PPF

-- National Saving Certificate

-- Premium on your life insurance policies

-- 5 Year fixed deposits with banks or Post Office

-- Mutual Fund ELSS (Equity Linked Savings Schemes)

Expenses related Options

-- Tuition fees paid for children's education (maximum two children)

-- Principal component of home loan repayment

-- Stamp duty and registration charges of your house

While making your investments, make sure you optimise the benefits by investing in instruments mentioned on the list above. If you're paying tuition fees for kids or EMIs on your home, then the net investments you require to make elsewhere will come down.

Why mutual funds, ELSS investment is your best bet

Mutual Funds ELSS is one of the best investment options available in the market, which apart from giving higher returns, also helps you save on taxes under Section 80C. Apart from benefits on tax returns, ELSS is low-cost, transparent, provides high liquidity, and to top it all, the returns on mutual funds are completely tax-free. With ELSS, there's no obligation to continue investing for the next few years, unlike other investment options.

Opt for PPF investment

You can put your money into a PPF account, especially when you don't have the time to plan. You can never go wrong with PPL and ELSS investments.

Open a PPF account online or if you already have one, then invest the remaining amount to cover the 80C limit. While it's not the best practice to invest in any instruments without thorough financial planning, as a last ditch effort, you can opt for either of these options.

Stay alert from fraudulent agents

Since it's year-end, many salespersons, disguised as financial planners, may push you to buy into various products only to achieve their targets. Investing in these options without due diligence may later become a bottleneck for the next 15-20 years. So, stay alert and don't rush to invest without understanding the instrument completely.

Life beyond Section 80C

Apart from covering your investment and expenses limit under Section 80C, there are several other options beyond it to save on taxes. Here are some of the options you can avail:

Home loan: The principal amount of your home loan gets covered under section 80C but the interest on your home loan is eligible for a deduction of up to Rs 2 lakh under Section 24.

Donations: In case you have donated money to charity through funds or organisations, the amount is eligible for a deduction under Section 80G.

HRA: If you're staying on rent, submit rent receipts to your employer to avail HRA benefits.

Interest on education loans: If you are paying interest toward an education loan taken for pursuing higher education then the entire interest amount of the loan is eligible for a deduction under Section 80E. This can be a loan taken for yourself, spouse or your child.

Health policy: The premium you pay on health insurance is up for a deduction of up to Rs 25,000, subject to certain conditions as per section 80D. An additional deduction is also available on the premium you pay for your parents' policy.

Reimbursement of medical expenses: Up to Rs 15,000 can be reimbursed by your employer in a year.

LTA: if your CTC has an LTA component, then you can claim it twice in a block of four years for your travel in India.

Since we are talking about investing in the last few days i.e. before March-end, it's very likely that those falling under this category will not be allowed to submit investment proof to their employers now. The deadline for that is usually sometime in January or February. But don't lose hope, you can still claim the excessive tax paid by filing tax returns in July and claiming a refund. The key is to invest wisely and making financial planning a priority next year to plan taxes better.

The author, Rishabh Parakh is a Chartered Accountant and the Chief Gardener & Founder Director of Money Plant Consulting, a leading Tax & Investment Planning Advisory Service Provider. He also runs a personal finance blog called “Mango Investor” aka AAM Niveshak at www.mangoinvestor.com. Readers are invited to send their feedback to [email protected].