Tax-saving plan must be for full year

(This story originally appeared in on Feb 28, 2022)

MUMBAI: With just a month left for the current financial year to end, taxpayers are again rushing to invest in popular tax-saving options. These include equity-linked investment schemes (ELSS by mutual funds), Public Provident Fund (PPF), National Pension System (NPS), tax-saving bank fixed deposits of five-year tenure, and life insurance policies. Health insurance policies also bring some tax benefits for buyers. But as a tax-saving option, these usually do not see any jump during the last three months of the fiscal.

Financial planners, investment advisers and distributors of financial products said that the best strategy for any taxpayer to save on tax is to invest regularly, through the year, and not just during the last few months of the fiscal. For example, if a taxpayer invests in ELSS plans using the monthly systematic investment plan (SIP), that could also limit the stress on their household budget in the last three months.

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Like investing in ELSS through the monthly SIP route, one could also set up a process to contribute to an NPS as well as PPF account regularly. That way, using monthly credits into the bank account, one could invest part of the same to smoothen out the tax-saving process through regular contributions, financial planners and advisers said.

But just like each year, this time too investors are deploying funds in tax-saving instruments during the January-March period, investment advisers and distributors of financial products said. For example, during January alone, net inflow into ELSS plans was nearly Rs 805 crore. In comparison, it was Rs 567 crore in December and just Rs 174 crore in November of 2021, data from MF industry trade body Amfi showed.

According to Priti Rathi Gupta, founder of the financial platform for women LXME, investors are in overdrive to put money in tax-saving mutual fund schemes to claim tax benefits since it is the last quarter of the financial year.

Under various sections of the I-T Act, the government allows taxpayers to invest in a set of approved financial products, insurance policies, etc, to claim tax benefits. For example, under Section 80C of the Act, one can invest in these approved products and policies to claim non-taxable income of Rs 1.5 lakh per annum and thus save on tax. There are options to save an extra Rs 50,000 per month by investing in NPS too, advisers said.

According to Arthbodh Shares & Investments founder & chairman Bhushan Mahajan, outside of the popular tax-saving products, there are additional options through which one could save some more tax. Although the principal part of home loan payment is included under the Rs 1.5-lakh limit, taxpayers could save up to an additional Rs 2 lakh per annum for paying the same home loan’s interest. “If the husband and the wife take a home loan jointly, each could separately save up to Rs 2 lakh under this option,” Mahajan said.

Some more tax could also be saved if one had taken an education loan and is repaying it. The interest part is deductible from the income and there is no upper limit for this. The principal part, however, is not deductible, Mahajan said.

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