TAX! TAX!! TAX!!!
How
to plan taxes in 10 days
BABAR ZAIDI
In the rush to meet the March 31
deadline, avoid investing errors that can haunt you for years
The 31 March deadline is just days
away, but many taxpayers are yet to sew up their tax plan ning for the year.
Either they were unfamiliar with the tax rules, confused by the array of
options or just plain lazy. Whatever be the reason, they are now sitting ducks
for unscrupulous distributors and financial advisers who capitalise on the
approaching deadline and palm off high-cost investments to unsuspecting
investors.
As a first step, calculate how much
more you need to invest. Many taxpayers don't know that tuition fees of up to
two children is eligible for deduction under Section 80C. Also, the principal
portion of the home loan EMI and the stamp duty and the registration charges
paid for a house bought during the year are all eligible for the deduction.
These, and the contribution to the PF, take care of the tax planning of many
individuals.
Put small amount in ELSS
ELSS funds are low on charges,
fairly transparent, offer high liquidity, the returns are tax-free and they
have the potential to create wealth. Also, you are under no compulsion to make
subsequent investments. Investing in ELSS funds is easy because you can apply
online. Many fund houses even pick up KYC documents from your residence. You
can also get your KYC done online.
At the same time, studies have shown
that a staggered approach works best when investing in equity funds. Investors
who took the SIP route in top ELSS funds in the past five years, have made more
money than those who waited and invested lump sum in March. It's too late to
take the SIP route now and investing a large sum at one go can be risky. We
suggest you put only a small amount in ELSS at this stage. It's best to start
an SIP in an ELSS fund after April.
PPF and FDs are safe bets
Unlike the ELSS funds, you can
invest blindly in the PPF. The rate has been reduced to 8.1% but since it is
tax free, the PPF is still better than bank FDs. If you already have a PPF
account, just put the remaining portion of your Sec 80C limit in it and be done
with it. Opening a new account at this stage may not be feasible if you have to
submit proof of investment this week. Even if you manage to open an account,
you will be cutting it too fine. If your investment cheque is not encashed by
31 March due to any reason, you may be denied the deduction for this financial
year.
If you don't have a PPF account, go
for tax-saving FDs or NSCs. The interest is fully taxable, which brings down
the effective post-tax returns in the 30% tax bracket to less than 6%. However,
with just 10 days left to go, they could be good options to save tax in a hurry
. You will earn low returns, but there are no hidden charges or any compulsion
to invest in subsequent years.
Avoid multi-year commitments
March is open season for
salespersons masquerading as financial advisers.They will push you to buy
insurance policies that can become millstones around your neck. Don't sign up
for insurance policies in a hurry. To make things easier for the buyer, the
agent even does the paperwork. All the buyer has to do is sign the application
form and write a cheque. But any investment that requires a multi-year commitment
must be assessed in detail, so don't let the agent force you into a decision.
Experts advise against mixing
insurance with investment. Buy a term plan for insuring yourself and invest in
other more lucrative options than a traditional insurance policy that offers
6-7% returns. A costly insurance policy prevents you from investing for other
goals. If you are paying a very high premium, it is advisable to turn the
policy into a paid up plan (see below).
Open NPS account in 30 minutes
Last year, the government announced
an additional deduction of `50,000 for investments in the NPS. This year's
Budget has made the scheme more attractive by making 40% of the corpus tax free
on maturity . Till a few months ago, opening an NPS account was considered an
uphill task. Now you can take the online route to open an NPS account in 30
minutes.
If you have an account in any of the
17 banks empanelled with the National Securities Depository Ltd (NSDL) and it
is linked to your PAN, you can apply online for an NPS account at
enps.nsdl.com. The bank will do the KYC and clear your application if
everything is in order. Investors whose Aadhar card is linked to their bank
account and mobile numbers can also apply online.They will receive a one-time
password on their registered mobile numbers for validation. Within minutes of
submitting the online application, the investor is allotted a PRAN (Permanent
Retirement Account Number) which can be used to invest in the scheme.
For those investing in the NPS, choosing
the right pension fund is critical because they will not be able to change for
at least one year. The NPS funds of ICICI Prudential Pension Fund have been top
performers in the past 3-year and 5-year periods.
No proof? No problem
Salaried taxpayers are expected to
submit proof of investment to their employers by mid-March. That window is
nearly closed now. If you have not submitted the proof of your tax saving
investments, TDS will be deducted from your March salary . But don't let that
stop you from investing now. If you are able to invest by 31 March, you can
claim a refund of the excess tax deducted from your salary . However, you will
get that money back only when you file your tax return in July .
TOI21MAR16
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