Are you looking for ways to save tax in the last minute before the official deadline to submit proof expires? In this juncture, it is important to invest only in instruments that you fully understand. Here are some simple last-minute tax-saving tips that you are unlikely to regret later on.
1. Factor in your children's (up to 2) school fees (pre-school onwards). This is a simple way to account for a portion of 80C deductions. Read more: Making the best use of section 80C for tax saving: an example
2. Invest only in what you understand. People around you may suggest ELSS mutual funds as way to save tax and beat inflation. They are right, but if you are not familiar with equity, do not use ELSS mutual funds to save tax in the last minute! Start such investments from April 2016 for the next financial year. For now, choose only what you understand.
3. What if I don't understand anything?! Then choose the simplest product - 5-year tax saving fixed deposits offered by banks. The money you invest is eligible for tax deduction under 80C, but the interest earned has to be declared each financial year and will be taxed as per slab.
Now, that may sound like a terrible deal. It is way better than buying ELSS mutual funds because someone said so, and expecting 'good returns'. Do not enter into equity unless you understand How to define ‘long-term’ and ‘short-term’
The reason I recommend tax-savings FDs as a last-minute tax-saving tip is because it is a one-time commitment. You get one and you don't have to pay anything to keep it alive. After 5 years, you have made some gains for sure and you move on.
It is the simplest product that can be procured online in the last-minute
4. PPF? PPF is obviously a very good fixed income product, but one should understand its place in a portfolio before buying one. It is folly to buy something with a 15-year duration at the last minute. If you want a PPF, get one in April after considering your asset allocation.
5 NPS? Well, I have bashed NPS enough. Same reason as above. NPS is a way more complex product than PPF. Do not get into NPS without understanding that NPS investments are mutual fund investments!
NPS is trying to get more subscribers by offering tax sops. Terrible idea to get into such a long-term product just for saving tax.
Please recognise that you are not saving tax with NPS. Just deferring tax until withdrawal: Do Not Invest Rs. 50,000 in NPS For Saving Tax!
NPS is a bad deal even if maturity amt is tax-free, but let us cross that bridge if and when get to it.
6 NSC: The national savings certificates are similar to tax-saving FDs, but going to a post office even once a year is too often!
Note to regular readers: This post is meant for those who are looking for last-minute tax-saving options. Concepts like, beating inflation and planning for financial goals should be done in leisure and never in haste.
I see too many people being recommend ELSS mutual funds as last-minute tax saving solutions. They make an investment in ELSS assuming that the investment duration is 3 years. Many of them do not have any understanding of investment risk and think they will get 'good returns'.
Note to those seeking last minute tax saving tips: If you like the points made in this post, I suggest you implement them and be done with this year's tax-saving. After that, if you think fit, do head back here and consider reading these two e-books which are compilations of freefincal posts: