Before you rush to save more taxes - H&R Block| Blog

Before you rush to save more taxes

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Anirudh Goel has a tough balancing act to manage in the last quarter of the year. His employer would be deducting high amount of taxes during the last three months of the financial year starting January 2015; his son has been after his life to sponsor his annual picnic, which is headed to a foreign destination and he has to allocate a bulk of the salary toward investments as he thinks he wasted the first 9 months of the year without investing anything for claiming tax deductions.

“How would I invest Rs 1.5 lakh to save tax, when my salary would be reduced to 2/3rds?” Goel has been worrying. If you too are in a situation like Goel, it is time to stop distressing and make some back of the envelope calculations.

Goel forgot that there are many mandatory investments he makes as an employee, which are counted under the Section 80 C basket of investments and hence he should be reducing the Rs 1.5 lakh limit – he is assuming he has to invest to claim tax deductions – by that extent. Apart from mandatory investments such as Public Provident Fund (PPF), Employees Provident Fund (EPF) there are expenses that he incurs which can be claimed under the Section 80 C, 80 D, 80 E and other clauses.

By way of mandatory deduction of EPF from his salary each month, he has contributed Rs 45,000 to EPF, which too is one of the Section 80 C investment avenue.

He pays Rs 50,000 as tuition fee for his son’s education, which can be claimed as deduction under Section 80 C. If he had been using an education loan to pay the fee then he would have to claim the same under Section 80 E.

He paid a yearly premium of Rs 28,000 for a life insurance policy that he had purchased two years ago. He is forgetting that recurring premium too is counted under Section 80 C. His ailing parents required certain preventive health check ups and he paid Rs 3,500 each for his mother and father. Now what many are unaware is that amount paid toward medical health checks too can be claimed under the Section 80 D, wherein one claims deduction for medical insurance premium. However, the amount he can claim would be restricted to Rs 5,000 annually. The good news is that he can claim this even if he has not opted for a health insurance cover as his employer provided mediclaim is sufficient.

Now deduct all these mandatory investment contributions and expenses paid throughout the financial year and the total amount that Goel has to invest to accomplish the 1.5 lakh of 80 C investments is Rs 27,000 (Rs 1.5 lakh – (Rs 45,000 of EPF + Rs 50,000 of tuition fee + Rs 28,000 of life insurance premium). He can even claim the Rs 5,000 worth of bills he paid for the preventive health check-ups separately under Section 80 D.

“What! I need to invest Rs 27,000 only and not Rs 1.5 lakh! I was unnecessarily fussing,” cheered Goel.

For all of you who are scrambling to accumulate funds for the tax-saving investments, remember there are many others, which one should factor in before stressing about the tax saving investments, apart from the investments and expenses mentioned here.

Your home loan principal amount, National Savings Certificate (discontinued now, but past investments during the current financial year), ELSS or tax-saving mutual fund schemes, 5-year bank fixed deposits, Sukanya Samriddhi contributions, NPS, etc. can all be accommodated in the Rs 1.5 lakh of deduction to be claimed under Section 80 C. Beyond this you can contribute to NPS to get additional deduction, claim the interest paid toward home loan, claim health insurance premium under Section 80 D, medical expenses for parents aged 80 years and above under Section 80 D too, donations to select charity organisations and funds under Section 80 G.

An easy way to calculate how much you would need to actually save would be to refer to the investment declaration and fill up the amount applicable. Don’t yet submit it, but use it as a guide to avoid missing out any particular investment or expense you have made.

However, don’t make investments before you vet all the aspects such as lock-in, possible returns, risks and charges as a wrong investment instrument would prove to be far more financially stressing than saving the tax for a single year. To avoid remorse later one should always think of tax-saving investments at the start of the financial year.

About Author/ Resource Box:

H&R Block India strives to blend tax expertise with a strong focus on continually improving the client experience to provide all its clients with an unparalleled value proposition for filing their Income Tax Online.

H&R Block India strives to blend tax expertise with a strong focus on continually improving the client experience to provide all its clients with an unparalleled value proposition for filing their Income Tax Online.

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