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Save Taxes by Planning Early

Most of us work too hard round the year but give very less priority to save the taxes or the importance of the tax planning and saving it early.

It is said, “Failing to plan is as good as planning to fail”
As when it comes to start of the year, from the perspective of taxes we know it begins on 1st April and gets completed by March 31st.

I believe till now every salaried person might have received mails from their finance department for declaring their investments by this month end. Also a caution note is been generally issued stating that it’s just a declaration and actual investment proof can be submitted later in the financial year in the month of December or January.

The first thought which comes to our mind is that we have ample time till December end to invest and then submit the actual proofs. And we just lay back on this thought.

Many people begin to look for investment avenues to help reduce their tax liability post December. You are probably too late. Past December 31, you have essentially missed almost close to an entire year of investing in tax-savings opportunities that could have been applied to your 2016-17 taxes.

Waiting till last month for submission of investment proof does not give enough opportunities and sufficient time to think through our investment decisions. Also there comes substantial cash outflow in the later part of the last months of the financial year.

But don’t be discouraged. You can get a jumpstart on planning for the taxes of current financial year from the start of year itself. So in the next few weeks, think about investing in tax-saving schemes for the next financial year, 2016-17.

“Start investing in them right from the beginning” (that is from the start of financial year itself)

Confused about exactly what, where and how to invest? Well, there are a variety of options available, here’s how this works.

To avail maximum tax benefit there are few points you need to study related to your tax situation and  based on this you need to take a decision and plan accordingly.

1.    Understanding the components of your Income (Salary):

  • Salary Restructuring, It may not be always possible but if your company permits it, do take this opportunity to restructure the components of salary . Restructuring few components will help you to save huge amount in taxes.
  • Getting the maximum deductions and reimbursements out of the salary components. E.g. LTA, Medical Bills Reimbursement, House Rent Allowance , Corporate Attire Allowance, Conveyance Allowance, Children Education Allowance.  These are the few examples.
  • Maintaining the receipts that you would require to furnish as an investments proof or for reimbursement at the end of the year.
  • Utilize the perquisite in a way which will maximize the benefit of perquisite taxation benefits. E.g. Using company car instead of self-owned car could help to save taxes more beneficially.

2.    Taking the benefit of your Housing Loan:

  • Housing Loan Interest deduction up to Rs.2,00,000. In case the house is jointly owned and both the owners have taken a joint loan then each owner can claim interest deduction up to Rs 2,00,000. (if it is self-occupied)
  • Principal on Home Loan EMI up to Rs.1,50,000.  (being a part of 80C investments)

3.    Utilizing Section 80C and Options beyond 80C:

  • Maximum deduction available under section 80C available right now is Rs.1,50,000. Apart from the PF which is already deducted by your employer and shown as a deduction in Form 16 , you can invest in any other options like PPF, LIC, Tuition fees of children, Equity link Savings scheme, 5 years Fixed Deposit, Sukanya Samruddhi  Fund and many more that are also eligible as a deduction under this section.
  • Even if the limit in the above section is exhausted, there is an additional deduction of Rs.50,000/- available under section 80CCD(1), i.e. contribution to NPS (National Pension Scheme) account subject to certain limit.
  • Section 80D allows deduction for preventive health checkup expenses and Medical Insurance Premiums. Also additional deduction can be claimed for the premium paid for senior citizen parents.
  • Further, Donation paid to specified funds and charitable organization if any are allowed as deduction under section 80G subject to the eligibility conditions.

To maximize your tax benefits, it’s a good idea to invest in a range of schemes categorized in the above sections.

In addition to the tax savings you can incur, you can also get tax benefits or exemptions on taxation at the time of maturity. Few Examples are Public Provident Fund, Sukanaya Samruddhi Yojana, Life Insurance policies.

Key points to be kept in mind:

1.    Do Start early at the right time.
2.    File your return on or before the due date.
3.    Submit your investment proof with the employer within time to save last minute hassle and prevent excess deduction of taxes.
4.    Check your Form 16 once you receive the same at the end of year and compare it with your investment declaration and the proofs you have submitted.

 “Earlier you begin; there is a greater potential return on the investments”

Starting early always helps for the five key reasons stated here

  1. Saving early helps multiply your money
  2. Money has more time to grow since compounding effect comes into play
  3. Helps averaging out the prices in fluctuating market conditions when you invest in market based instruments
  4. Opportunity to analyse the investments well
  5. Avoid the hassle of claiming delayed refunds

So make sure you save well and earn well by beginning at the right time.

Getting a help of tax expert and consulting them for tax planning would take you in a good position and optimize your tax liabilities.

Priyanka Jhaver
Priyanka Jhaver
Priyanka is a Chartered Accountant by profession and has been working with H&R Block for 2.5 years. She has a post qualification experience of 4+ years. She looks after direct taxation related to individual clients handling there complex tax situations. She has also handled expat clients, NRI’s, dual tax situations, inbound and outbound clients. She also handles US taxes and tax planning for her India clients.

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