As the 31st March tax deadline looms just around the corner, many taxpayers find themselves scrambling to finalise their tax-saving strategies for the year. Whether due to a lack of awareness about tax rules, confusion over investment options, or simply procrastination, these individuals now risk falling prey to opportunistic distributors and financial advisors looking to push high-cost investments onto unsuspecting investors.
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Assessing Your Needs: Calculating Remaining Investments
The first step for taxpayers is to assess how much they need to invest under Section 80C. Surprisingly, many are unaware that tuition fees for up to two children are eligible for deduction under this section. Additionally, expenses such as the principal portion of home loan EMIs and stamp duty can also be claimed. Utilizing existing contributions to the Provident Fund and premiums for insurance policies may further reduce the required investment.
Adjusted Strategies: Considerations for ELSS Funds
While earlier recommendations favoured Equity Linked Savings Schemes (ELSS) funds for tax-saving purposes, the current approach suggests a more cautious strategy. ELSS funds offer benefits such as low charges, liquidity, and tax-free returns. However, investing a lump sum amount in March can be risky, and studies have shown that a staggered approach, such as Systematic Investment Plans (SIPs), tends to yield better results. Investors are advised to allocate only a small amount to ELSS funds at this stage and consider initiating SIPs in reputable schemes post-April.
Exploring Alternatives: PPF, FDs, and NSCs
For a more conservative approach, options like the Public Provident Fund (PPF), tax-saving fixed deposits, or National Savings Certificates (NSCs) are recommended. While these may offer lower returns compared to ELSS funds, they provide a safer avenue for last-minute tax-saving needs.
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Investing in existing PPF accounts or opting for online investments in PPF through select banks can streamline the process, ensuring timely tax benefits.
Caution Against Multi-Year Commitments: Insurance Policies and Pension Plans
Taxpayers are cautioned against succumbing to pressure from agents promoting insurance policies and pension plans requiring multi-year commitments. While insurance policies may offer convenience, they often provide subpar returns and limit investment flexibility. Instead, experts advocate for standalone term insurance plans and alternative investment avenues. Similarly, pension plans from insurance companies are viewed unfavourably compared to the more cost-effective New Pension System (NPS), which offers enhanced tax benefits and greater flexibility.
Missing the Deadline: Consequences and Solutions
For those who have missed the submission deadline for tax-saving investment proofs to their employers, the risk of TDS deductions looms large.
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However, investing before the 31st March deadline allows taxpayers to claim refunds for excess taxes deducted from their salaries. Although refunds are only processed upon filing tax returns in July, investing before the deadline ensures potential tax savings and financial prudence.
