Effective Tax Planning

Tax Saving Mutual Funds Online

Current open Infra Bond Application form

   With just two months left in the current financial year, time is running out for tax-payers looking to make investments to save taxes. And, since they are most likely to be taken for a ride by greedy advisors, it is also the time for them to be on guard. Here are some tips to avoid the typical mistakes made while carrying out the tax-planning exercise: 

Look at the big picture 

Tax planning cannot work in isolation. It has to be in line with your overall financial planning. While making an investment, one should clearly weigh the return, security, liquidity, tenure of investment, tax benefits and risks and take a holistic view. The investors make last minute tax investments into those instruments which are most visible, than what is actually required. For instance, investors end up buying an expensive recurring product like an insurance scheme thinking the premium amount will be eligible for tax deduction every year. But this investment may not be in line with the individual's goal and the financial portfolio.

Insurance Premium Life Covers

They have become a rage of late with a few companies launching single-premium endowment plans. Even if they seem like the right products for you, ensure that the sum assured is at least five times the annual premium. Else, it you may end up foregoing certain tax benefits – in terms of exemptions under Section 80 C for premiums paid and under 10 (10D) for maturity proceeds. For instance, a single premium policyholder would not be eligible to receive the sum as exempt under section 10D except where the same is received by the legal heir in case of death of the policy holder. The amount of 20% cannot be calculated after netting off the amount of premium returned by the agent with regards to the policy sold.

For the purpose of deduction under Section 80C in respect of the premium for such policies, the deduction is limited to 20% of the capital sum assured.

PPF Investments Are Not Rewarding

Tax-payers tend to invest chunks in PPF in the last two months of the financial year. In such cases investors don't benefit from the annual return of 8.6%. Ideally, an investor should invest before the 5th of every month in PPF to earn the interest for that month. In case of cheque payments, ensure your cheque gets cleared by this date.

Joint Loans Can Be Doubly Beneficial

Some couples who take joint home loans make the mistake of assuming that deductions, too, are available collectively and not individually.

However, this is an incorrect impression. In fact, the deduction for interest up to . 1.5 lakh on such loans can be claimed by each of the joint owners and co-borrowers. Similarly, the deduction in respect of principal repayment can also be claimed by each of the co-owners.

Invest Property Sales Proceeds In Time

A window of two years is available to invest proceeds from property sale, but it is not unconditional. Under Section 54, capital gains realised from sale of residential house are exempt in case of re-investment in the purchase of residential property one year before transfer or two years after transfer, or construction before three years after transfer (That is, investment has to be made within the specified time limit). If the amount is not utilised till the date of filling of return, then deposit must be made in a nationalised bank under the Capital Gains Account Scheme.

Look Beyond 80 C

There are many tax benefits provided in the Act over and above the . 1 lakh limit provided under Section 80C. For instance, house rent allowance (HRA), paying rent to your parents, mediclaim and the latest tax saving instrument being the infrastructure bonds. To give an impetus to infrastructure spending, the government introduced an additional deduction of up to . 20,000 for subscription in specified long-term infrastructure bonds. This deduction was originally meant to apply for subscriptions made between April 1, 2010 and March 31, 2011, but has been extended up to March 31, 2012.

In fact, it makes sense to invest in these bonds in the current interest rate scenario and that too if you are in the highest tax bracket. Investing in infrastructure bonds will be most useful for those in the highest tax bracket as the tax savings potential is the highest. Even for 20% tax slab it is fine. For those in 10% tax slab, it is not really that lucrative and not recommended.

While making donations under section 80G make sure you are doing it to institutions approved under Section 80G of the Income Tax Act- The rate of deduction is either 50 or 100% of the qualified income and depending on the organisation chosen. Also, ensure that you keep the receipts in records. Otherwise, you may not be able to claim the deduction u/s 80G.

Don't Overlook Tax Friendly Savings

Investors tend to ignore minute tax savings/expenses which are incurred by default. For instance, employees forget to include their contribution to the Employee Provident Fund (EPF) as a part of the . 1 lakh limit under Section 80 C. Similarly, parents forget to include the tuition fees paid for their child's education as a part of the . 1 lakh limit. In fact, these components alone take care of the Section 80 C limit.

You may be short of time. But still that does not justify you making irrational financial decisions. Take stock of EPF, school fees and other investments before you make fresh investments. That will help you make an informed decision.

Life Insurance Premium

If your policy's sum assured is less than five times the annual premium, your maturity proceeds will be taxed. Also, deduction under Section 80C for premium will be restricted to 20% of the sum assured
   
Public Provident Fund

Postponing PPF investments to the last two months of the financial year will mean only a part of the 8% annual return accruing to you. You also need to ensure that investment is made before the 5th day of a month
   
Tuition Fees & PF

If you are investing solely to save tax, factor in the tuition fees paid for your children's education before going ahead, since it is part of the 80C basket. Same holds true for provident fund deducted from your salary every month
   
Proceeds from Property Sale

Ensure the proceeds are directed to the Capital Gains Account scheme if you have not utilised the money to buy a property while filing tax return. Else, it will be taxed

Health Premium for Parents

Try to pay health insurance premiums for your parents if you want to secure the additional deduction of 15,000 under Section 80D. It can go up to 20,000 if they are senior citizens

 

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Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

 

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

 

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

 

These Application Forms can be used for buying regular mutual funds also

 

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

1. HDFC TaxSaver
2. ICICI Prudential Tax Plan
3. DSP BlackRock Tax Saver Fund
4. Birla Sun Life Tax Relief '96
5. Reliance Tax Saver (ELSS) Fund
6. IDFC Tax Advantage (ELSS) Fund
7. SBI Magnum Tax Gain Scheme 1993
8. Sundaram Tax Saver

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Application form for Tax Saving Infrastructure Bond and more information

Current open Infra Bond Application form

 

Submit filled up application    Collection canter near you

 

 

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How to apply to IRFC Bonds?

Apply for IRFC Tax Free Bonds forms below

Download IRFC Tax Free Bond Application Forms

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How to apply to HUDCO Bonds?

Apply for HUDCO Tax Free Bonds forms below

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How to apply to REC Bonds?

Apply for REC Tax Free Bonds forms below

Download REC Tax Free Bond Application Forms

Submit the filled up form to Collection canter near you